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A bond with a face value of $2,500 with a coupon rate of of 14% payable...

A bond with a face value of $2,500 with a coupon rate of of 14% payable semiannually is redeemable after 7.5 years. The bold is sold to have a yeild of 7.2% convertible semiannually. The discount on the bond is $283.12. Find the price of the bond.

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Answer #1

Face Value = $ 2500

Sem-annual Coupon Rate = 14%

Semi-annual coupon payment = $ 2500*14%*1/2 = $175

Semi-annual yield(YTM) = 7.5%/2 =3.75%

no of peiods (n) = 7.5 yrs* 2 =15

Calculating the price of the Bond:

Price = $ 1980.18 + $ 1439.19

Price = $ 3419.37

So, the price of Bond is $ 3419.37

Note- The discount on bond is received at the time of initial issue of Bond, thus it will not impact on redeemable face value as bonds are redeemed at fair value

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