audia4
April 8th 2006, 12:08 PM
ok, I have a question that I didn't quite follow.
Smith purchases a $1000 par value, ten year, 5% bond with semiannual couponds. Smith pays a price of P1. After six years ,ie, following the twelfth coupon payment, smith sells the bond to jones at a price of P2. Jones retains the bond to maturity. The yield rate on Smith's investment is 7% convertible semiannually. The yield rate on Jone's investment is 6% convertible seminannually. What is P1.
My question is: I can calculate p1 directly assuming C = 1000, since the info states that this is a par bond. HOwever, the solutions calculated p2, and used this value as C for the redemption value, and then subsequently solved P1 using this value of C. HOw am I supppose to ahve concluded this from the question, ie that p2 = C for p1.
Thank you.
Smith purchases a $1000 par value, ten year, 5% bond with semiannual couponds. Smith pays a price of P1. After six years ,ie, following the twelfth coupon payment, smith sells the bond to jones at a price of P2. Jones retains the bond to maturity. The yield rate on Smith's investment is 7% convertible semiannually. The yield rate on Jone's investment is 6% convertible seminannually. What is P1.
My question is: I can calculate p1 directly assuming C = 1000, since the info states that this is a par bond. HOwever, the solutions calculated p2, and used this value as C for the redemption value, and then subsequently solved P1 using this value of C. HOw am I supppose to ahve concluded this from the question, ie that p2 = C for p1.
Thank you.