Question

Microhard has issued a bond with the following characteristics:

Par: $1,000

Time to maturity: 10 years

Coupon rate: 13 percent

Semiannual payments

Calculate the price of this bond if the YTM is

1. 13%

2. 15.%

3. 11%

Answer 1

Calculation of the price of this bond at different YTM is shown below:

a. 13%

Bond Price Today = pv(rate,nper,pmt,fv)

rate = 13 *1/2 = 6.5%

nper= 10 years * 2 = 20

pmt = 13%*1000 *1/2 = $65

fv = $1,000

Bond Price Today = pv(6.5%,20,65,1000) = $1,000

b. 15%

rate = 15 *1/2 = 7.5%

nper= 10 years * 2 = 20

pmt = 13%*1000 *1/2 = $65

fv = $1,000

Bond Price Today = pv(7.5%,20,65,1000) = $898.06

c. 10%

rate = 11 *1/2 = 5.50%

nper= 10 years * 2 = 20

pmt = 13%*1000 *1/2 = $65

fv = $1000

Bond Price Today = pv(5.50%,20,65,1000) = $1119.50