Revision as of 21:12, 19 November 2023 by Admin (Created page with "You are given the following information about Bond A and Bond B: #Bond A is a 20-year bond that has 10,000 face amount, an annual coupon rate of 7% payable semiannually, and has a redemption value that is 10% higher than its price. Bond A is bought to yield an annual nominal interest rate of 5% convertible semiannually. #Bond B is an n-year bond with semiannual coupons and the same face amount, redemption value, coupon rate, and yield rate as Bond A. The price of Bond B...")
ABy Admin
Nov 19'23
Exercise
You are given the following information about Bond A and Bond B:
- Bond A is a 20-year bond that has 10,000 face amount, an annual coupon rate of 7% payable semiannually, and has a redemption value that is 10% higher than its price. Bond A is bought to yield an annual nominal interest rate of 5% convertible semiannually.
- Bond B is an n-year bond with semiannual coupons and the same face amount, redemption value, coupon rate, and yield rate as Bond A. The price of Bond B is 158.33 less than the price of Bond A.
Calculate n
- 12
- 17
- 24
- 36
- 48
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
ABy Admin
Nov 19'23
Solution: C
[[math]]\begin{aligned} & P_A=350 a_{\overline{400} | 0.025}+1.1 P_A v^{40} \\ & P_A=8785.97+P_A(0.409674) \\ & P_A=14,883.24 \\ & R=1.1 P_A=16,371.57 \\ & 14,724.91=350 a_{\overline{m} |0.025}+16,371.57 v^m \\ & m=48 \\ & n=24\end{aligned}[[/math]]
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.