Question

Bond valuation-Semiannual interest   Find the value of a bond maturing in 10 ​years, with a ​$1000 par value and a coupon interest rate of 8​% ​(4​% paid​ semiannually) if the required return on​ similar-risk bonds is 18​% annual interest left parenthesis 9 % paid​ semiannually).

The present value of the bond is $

Answer 1

Information provided:

Par value= future value= $1,000

Time= 10 years*2= 20 semi-annual periods

Coupon rate= 8%/2= 4% per semi-annual period

Coupon payment= 0.04*1,000= $40

Yield to maturity= 18%/2= 9% per semi-annual period

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 40

I/Y= 9

N= 20

Press the CPT key and PV to compute the present value.

The value obtained is 543.57.

Therefore, the present value of the bond is $543.57.