Answer to Question #217864 in Finance for Beauty Magadlela

Question

Consider Bond XYZ

Coupon rate: 9,75% per year

Yield to maturity: 11,4% per year

Maturity date: 15 April 2046

Settlement date: 29 November 2021

The accrued interest is

[1] R1,20205%. [2] R2,34537%. [3] R5,87781%. [4] R1,18207%. [5] none of the above

Answer 1

I can use excel's 'PRICE' function to retrieve the bond's clean price.

Formula

=PRICE(settlement, maturity, rate, yield, redemption, frequency, [basis])

 

The bond's payment date is referred to as the settlement period

Maturity — the bond's expiration date.

Rate - the bond's yearly coupon rate.

The bond's annual yield is called yield.

The redeeming value of a bond per $100 face value is known as the redemption value.

The number of coupon payments per year is known as the frequency.

The basis specifies the financial day count basis on which the bond is calculated.

 

A correct answer is an option [5] R86,39294%.

To get the clean price of the bond, we will use the 'PRICE' function in excel.

Formula

=PRICE(settlement, maturity, rate, yield, redemption, frequency, [basis])

 

1. Settlement – The bond’s settlement date.
2. Maturity – The date when the bond expires.
3. Rate – the annual coupon rate of the bond.
4. Yield -The annual yield of the bond.
5. Redemption- the redemption value of the bond per $100 face value.
6. Frequency – The number of coupon payments per year.
7. Basis – Specifies the financial day count basis that is used by the bond.

 

explanation

I will start with the '=' sign, then type 'PRICE' and choose the price formula from the list, as seen above. Then, as instructed, we'll add the inputs. Final payment, maturity date, coupon rate, yield to maturity, redemption per 100 (if redeemable at par), frequency of payments, and basis are all important factors.

Redemption (required argument) – This is the bond's redemption value per $100 face value.

If I solve this, I will get 86.444.

Thus,

The bond's price will be around 86.44. Hence none of the prices above relates to the answer.