Question

Genesis corp. issued a 20-year semi-annual bond with a face value of $1,000, and an annual coupon rate of 8%. The bond equivalent yield (BEY) is 9%. What is the Bond’s price?

$936

$908

$1,080

$1,000

$966

Answer #1

**The value of the bond is computed as shown
below:**

**The coupon payment is computed as follows:**

= 8% / 2 x $ 1,000

**= $ 40**

**The YTM will be as follows:**

= 9% / 2

**= 4.5% or 0.045**

**N will be as follows:**

= 20 x 2

**= 40**

**So, the price of the bond is computed as
follows:**

**Bonds Price = Coupon payment x [ [ (1 - 1 / (1 +
r)**^{n}**] / r ] + Par
value / (1 + r)**^{n}

= $ 40 x [ [ (1 - 1 / (1 + 0.045)^{40} ] / 0.045 ] + $
1,000 / 1.045^{40}

= $ 40 x 18.40158442 + $ 171.9287011

**= $ 908 Approximately**

**Please ask in case of any doubts**

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