Question

What is the price of a $1000 par value of a corporate bond that was issued with an 9% annual coupon that pays semiannual interest, a YTM of 4% and is due in 15 years?
Show all work for credit.

Answer 1

> Concept

The price of bond is equal to present value of coupen amount and terminal value.

> Formula

Price = Coupen Amount * PVAF(r%, n) + Face Value * PVIF(r%, n)

where r = peroidic YTM. In our case it is 2% [4% / 2]

           n = number of periods. In our case it is 30 [15*2]

> Calculation       

Price = [ 1000 * 9% * 6/12 ] * PVAF(2%, 30) + 1000 * PVIF(2%, 30)

          = 45 * [ 1/1.02 + 1/1.022 +.....+ 1/1.0230 ]    +    1000 * [1/1.0230 ]

          = 45 * 22.3965 + 1000 * 0.5521

          = $ 1559.9425 Answer

> Answer

The price of the bond today is $ 1559.94.

Hope You understand the solution.