Question

A 1,000 dollar face value bond currently has a yield to maturity of 5.47 percent. The bond matures in 25 years and pays interest semiannually. The coupon rate is 8.25 percent. Whaat is the current price of bond

Answer 1

We know that,

Price of the bond = Present Value of all semi-annual coupons and face value discounted at semi-annual ytm

Face Value = 1000

Semi-annual YTM = 0.0547/2

Number of payments = 25 * 2 =50

Semi -annual amount = 0.0825*1000/2 = 41.25

Price of he bond = 41.25/(1+0.02735)^1 + 41.25/(1+0.02735)^2 +41.25/(1+0.02735)^3 + 41.25/(1+0.02735)^4 + 41.25/(1+0.02735)^5 + ......................... 41.25/(1+0.02735)^50 + 1000/(1+0.02735)^50

Price of the bond = 1376.36 Answer