Question

A semi-annual bond has a face value of $1,000, a coupon rate of 7.2%, a yield to maturity of 5.5% and has 5 years remaining to maturity. What is the price of the bond?

Answer #1

You need to use a Financial calculator to solve this problem. You can download it.

N = 5 * 2 = 10 (The Bond is for 5 years, as semiannual, so 10 payments)

PMT => 7.2% of 1,000 = 72/2 = -36 ( The coupon 7.2% is on Face Value, as semiannual so divide by 2)

FV = -1,000 (The Face value of bond is $1,000)

I/Y = 5.5 / 2 = 2.75 (Annual rate is 5.5%, as semiannual so divided by 2)

CPT + PV = 1,073.44

The price of the bond is $1,073.44

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