Question

ABC Company is issuing a new bond with a par value of $1000 and a coupon rate of 7%. The time to maturity is 16 years and the Yield to Maturity is 4.15%. If coupon payments are semi-annual, what is today's price of this bond?

Answer 1

Today's price of bond = Present value of receipts from bond

Semi annual Coupon rate = 7%/2 = 3.5%

coupon payment = 3.5%*1000 = $35

YTM semi annual = 4.15%/2 =2.075% ( assuming give YTM in question is per annum )

Number of periods = 2*16 = 32

Present value of receipts from bond = Coupon payment * PVAF (r%, n periods) + Maturity value * PVF (r%, n periods)

Present value of receipts from bond = $35 * 23.21455238 + $1000 * 0.518298038 = $1330.81

Today's price of this bond = $1330.81