Results 1 to 7 of 7

Math Help - bond question

  1. #1
    Junior Member
    Joined
    Sep 2007
    Posts
    38

    bond question

    Here's a question from an actuarial CAS Exam 2. Can someone show me how to do it. I know the answer is (A), but I'm not sure why.

    A 30-year bond has 10% annual coupons and a par value of 1000. Coupons can be reinvested at a nominal annual rate of 6% convertible semi-annually. X is the highest price that an investor can pay for the bond and obtain an effective yield of at least 10%

    Calculate X.

    (A) 518

    (B) 618

    (C) 718

    (D) 818

    (E) 918

    Thanks in advance for your help.
    Follow Math Help Forum on Facebook and Google+

  2. #2
    Junior Member
    Joined
    Sep 2007
    Posts
    38
    I figured this out, but I have another question.

    A $1000 10% bond has semi-annual coupons. It is purchased new at $880 and is redeemable at $1020. Find the coupon amount and the effective yield rate per coupon period.

    Can this problem be solved for the effective yield rate? Don't I need the number of coupon periods? The coupon amount is easy (just Fr = (1000)(0.05)), but can I answer the second half as is?
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    Quote Originally Posted by BrainMan View Post
    I figured this out, but I have another question.

    A $1000 10% bond has semi-annual coupons. It is purchased new at $880 and is redeemable at $1020. Find the coupon amount and the effective yield rate per coupon period.

    Can this problem be solved for the effective yield rate? Don't I need the number of coupon periods? The coupon amount is easy (just Fr = (1000)(0.05)), but can I answer the second half as is?
    Is the term of the bond given to you?
    Follow Math Help Forum on Facebook and Google+

  4. #4
    Junior Member
    Joined
    Sep 2007
    Posts
    38
    No it isn't, right? Don't I need the length of the bond to answer the question?
    Follow Math Help Forum on Facebook and Google+

  5. #5
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    Quote Originally Posted by BrainMan View Post
    No it isn't, right? Don't I need the length of the bond to answer the question?
    I would think so. Using Basic Formula, Premium/Discount, Base Price, and Makeham's, all of them have the term and yield as variables. Do you have Kellison's "Theory of Interest" Book? If not, let me check my copy to see what they say about solving for yield rate and n as well.

    Do they want an answer in numerical terms, or in terms of a variable. I remember taking the actuarial exams years ago and one of the bond questions had multiple choices like the question you asked and all the answers were stated in terms of a variable.

    Let me know what you think.

    I have this lesson here built from Kellison's book on bond pricing, but it's not built to solve for 2 unknowns:

    Bond Price Formulas

    I know Kellison has another chapter on bonds with respect to yield rates. I'll take a look for you.
    Follow Math Help Forum on Facebook and Google+

  6. #6
    Junior Member
    Joined
    Sep 2007
    Posts
    38
    Thank you very much for helping; I'm pretty sure though you can't answer it as given.
    Follow Math Help Forum on Facebook and Google+

  7. #7
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
    Posts
    364
    Quote Originally Posted by BrainMan View Post
    Thank you very much for helping; I'm pretty sure though you can't answer it as given.
    Brain Man,

    I know we discussed this thread last week, but should you revisit or need to determine yield rates, I built a new lesson if you want to check your work.

    Bond Yield Rate Formulas

    If redemption value is not stated, just enter the par value for that as well. Let me know if you have questions. Also, if you want the Newton-Raphson approximation built, I can do that by request.
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Bond
    Posted in the Business Math Forum
    Replies: 1
    Last Post: August 10th 2010, 06:15 PM
  2. Bond Value
    Posted in the Business Math Forum
    Replies: 2
    Last Post: July 9th 2010, 10:48 AM
  3. Bond question
    Posted in the Business Math Forum
    Replies: 1
    Last Post: May 24th 2010, 05:42 AM
  4. Bond Question
    Posted in the Business Math Forum
    Replies: 2
    Last Post: May 21st 2008, 07:05 PM
  5. Bond Pricing Question
    Posted in the Business Math Forum
    Replies: 1
    Last Post: March 2nd 2008, 04:14 AM

Search Tags


/mathhelpforum @mathhelpforum