Example 48 (SOA):

Tina buys a 1000 par value 10-year bond

with 10% annual coupons at a price to
yield an annual effective rate of 10%.
The coupons were reinvested at an
annual effective rate of 8%. Immediately
after receiving the 4th coupon payment
Tina sells the bond to !oe for a price of
Q. Q assumes an annual effective yield
of i to the buyer. Tina"s annual effective
yield from the date of purchase until the
date of sale was 8%. #alculate i.
Example 50:
$ 100000 bond matures on !anuary
1% &0&%. The bond pays coupons at
an annual rate of '% payable
semiannually (every !anuary 1% and
!uly 1% until maturity). *ind the
mar+et price of the bond on $pril 1
&00% at a nominal annual yield to
maturity of 4% compounded semi-
annually.
,-ample 1.
#onsider a 1000/ par value bond that
has to be redeemed in two years with
an 8% convertible semiannually
coupons bought to yield a '%
convertible semiannually.
a) #onstruct the amorti0ation table.
b) 1edo the same table assuming a
yield of 10% convertible
semiannually.