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What is the transaction price if the rate of return required

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Sports image management company RSCL has outstanding bonds with a maturity of 5 years, having a face value of $ 1,000 and paying a semi-annual coupon of $ 36. His bonds are selling for $ 1,085.71 today.

Mr Sprott buys this bond and sells it after 16 months (so 1 year and 4 months, during which Mr Sprott received 2 coupons).

Problem 1) What is the rate of return required by the bond market for this bond? Express this rate according to bond conventions.

Problem 2) Is this bond traded at par, at a premium or at a discount? Justify by giving the fundamental reason!

Problem 3) At the end of the 16th month, what is the transaction price if the rate of return required by the market is 9.00% (annual nominal, capitalized semi-annually)?

Problem 4) If Mr. Sprott can reinvest the coupons received at the periodic bi-monthly interest rate of 0.5%, what is the rate of return achieved over the 16-month holding period? Express this rate as an annual effective rate.

Reference no: EM132879120

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