(1 pointy Two bonds, each with a face value of $16000, are redeemable at par in t

Bond 1

Let the months be t

and the yield , we have for annual, so we will first convert it to monthly = 0.06/12 = 0.5%

Face value = 16000

Sales Value = 22485.29

Coupon value = 11.4%

So the equation will be

⇒ 22485.29 = (16000*0.114/12)*(v + v^2 +v^3 +…..+v^t) + 16000*v^t

where v = 1/(1+i) and i = 0.5%

⇒ 22485.29 = 152*v*(1 - v^t)/(v) + 16000*v^t

⇒ 22485.29 = 152*((1 - (1+0.005)^(-t))/(0.005)) + 16000*(1+0.005)^(-t)

So by putting the values in this ques , 0

at t = 119 , RHS = 22445.71508

at t = 120 , RHS = 22485.28864

at t = 121 , RHS = 22524.66531

So we get the value of t = 120 months

Bond 2

Let the months be t

and the yield , we have for annual, so we will first convert it to monthly = 0.06/12 = 0.5%

Face value = 16000

Sales Value = P

Coupon value = 3.9%

So the equation will be

⇒ P = (16000*0.039/12)*(v + v^2 +v^3 +…..+v^t) + 16000*v^t

where v = 1/(1+i) and i = 0.5%

⇒ P = 52*v*(1 - v^t)/(v) + 16000*v^t

⇒ P = 52*((1 - (1.005)^(-120))/0.005) + 16000*((1.005)^(-120))

⇒ P = $ 13477.94