Page 125 - Accountancy_F5

Solution 4.5
1
1 - c n m
> ^ 1 + ih H M
Bond price = c + ; n E
i ^ 1 + ih

1
FOR ONLINE READING ONLY
1 - c 20 m
Bond price = , 1 200 000 # > ^ 1 + . 0 06h H + 20 ,000 .000
,
. 006 ^ 1 + . 0 06h 20

= 13,763,905.50+6,236,094.50
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= TZS 20,000,000

Workings:
1. Coupon based payment on semi-annual basis I = 6% x 20,000,000 = TZS 1,200,000
2. Number of periods for semi-annual instalment payments (n) = 10 years # 2 instalment
= 20
3. The required rate of return – semi-annually; 1 = 6 # 12 % = 6 %
12
4. The maturity value of the bond (M) = TZS 20,000,000
The price of the bond is TZS 20,000,000 which is the same as the face value. In this
case, the bond is sold at par value; it is neither at discount nor a premium because
the coupon rate is equal to the required rate of return.
Example 4.6
The price of a 10-year government bond with a 9 per cent (4.5 per cent per 6 months)
coupon rate and a par value/maturity value of TZS 20,000,000 and the required return
of 12 per cent is as follows:

Solution 4.6

1
1 - c n m
> ^ 1 + ih H M
Thus, bond price = c i + ; ^ 1 + ih n E

1
1 - c 20 m
,
> ^ 1 + . 0 06h H 20 ,000 000
Bond price = 900 000 # +
,
. 006 ^ 1 + . 0 06h 20
= 10,322,929.1 + 6,236,094.5
= TZS 16,559,023.6

Student’s Book Form Five
112

23/06/2024 17:35
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ACCOUNTANCY_DUMMY_23 JUNE.indd 112 23/06/2024 17:35