Question

A bond pays 9% coupon rate semiannually and matures in three years is up for sale. If the required rate of return on the bond is 11%, the price of the bond per 100 of par value is closest to:

A. 72.00

B. 95.00

C. 98.11

D. None of the above.

Answer 1

Answer is 95.00

Par Value = 100

Annual Coupon Rate = 9.00%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * 100
Semiannual Coupon = 4.50

Time to Maturity = 3 years
Semiannual Period = 6

Annual Required Return = 11.00%
Semiannual Required Return = 5.50%

Bond Price = 4.50/1.055 + 4.50/1.055^2 + 4.50/1.055^3 + 4.50/1.055^4 + 4.50/1.055^5 + 4.50/1.055^6 + 100/1.055^6
Bond Price = 4.50 * (1 - (1/1.055)^6) / 0.055 + 100 * (1/1.055)^6
Bond Price = 4.50 * 4.995530 + 100 * 0.725246
Bond Price = 95.00

answered by: anonymous