Question

Compute the price of a bond with 8 years to maturity, a coupon rate of 4.8%, and a market interest rate of 6.5% if the bond pays interest payments semi-annually on the $1,000 par value

. $1,100.00

$940.96

$895.24

$599.52

Answer 1

	Amount	PV factor	Present value
Semi-annual interest	24	12.32436	295.78
Maturity value	1000	0.599458	599.46
Price of Bond			895.24
Option 3 is correct
Workings:
Semi-annual interest = 1000*4.8%/2 = $24
Interest rate for PV factors = 6.5%/2= 3.25%
For semi-annual interest, PV factor of $1 annuity for 16 periods at 3.25% is used
For maturity value, PV factor of $1 for 16 periods at 3.25% is used
PV factors can be obtained as:
(1-(1.0325)^-16)/0.0325 = 12.32436
1/1.0325^16 = 0.599458