Question

Andy purchased a 6% coupon rate commonwealth Government Securities (CGS), which mature in 2022 June. Assume the par value is 100, and YTM is 5% P.A. Please calculate the CGS price when Andy purchased this bond on 9th of June 2020, keep 4 decimal places. (Notice: 2020 is a leap year) (1.5 marks

Answer 1

The price of the CGS bond when Andy purchased it on June 9, 2020, is $5.4878.

Step-by-step explanation:

To calculate the price of the CGS bond, we need to use the present value formula. The formula is PV = C / (1+r)^n, where PV is the present value, C is the coupon payment, r is the discount rate, and n is the number of periods.

In this case, the coupon payment is 6% of the par value or 6/100 × 100 = 6, and the discount rate is 5% per annum. Furthermore, 2 years are remaining until maturity, so n = 2.

Plugging in the values, we can calculate the price of the bond:

PV = 6 / (1+0.05)^2 = 5.4878

Therefore, the price of the CGS bond when Andy purchased it on June 9, 2020, is $5.4878.