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Bond Yields

Course: Investment Planning
Lesson 9: Equity Securities

Student Question:

Greetings Dan,

I am in the Investment Planning course, on Topic 36.  In the sample questions that ask to determine bond yields, how do I determine the value for the end of period payment?

For example, refer to

Page 36.11, the practice question gives $37.50 as the end of period payment
Page 36.12, the example uses $45 as the end of period payment.
Page 36.26, for application question #4, the answer sheet says to use $80 for the end of period payment.

I cannot figure out how to determine this value.  Can you help?

Regards
Chris

Instructor Response:

Hey Chris,

Yeah, happy to help here.  Remember that bonds pay a coupon, and it will typically be either annual or semi-annual. So all you’ll need to do is find the coupon rate and apply that to the face value of the bond.  So on 36.11, the end of payment amount is $37.50 because we have semi-annual payments on a 7.5% coupon rate with face value of $1,000.  The calculation is 7.5% times $1,000, which is $75.00, but then divide by 2 for semi-annual.

On 36.12 we have 9% semi-annual, so 9% of $1,000, then divide by 2, and that gives us $45.

And finally on 36.26, we have 8% annual, so it’s just 8% of $1,000, which equals $80.

Let me know if you have any other questions on that!

Dan