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2 years ago, a company issued a 10-year, 9% coupon bond with a face value of...

2 years ago, a company issued a 10-year, 9% coupon bond with a face value of $1000. The bond makes quarterly coupon payments. Today, the bond yields APR of 10% compounded semi-annually. What is the price of the bond today?

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Answer #1

The bond was issued 2 years ago. The remaining number of semi-annual coupon payments will be = (10 years - 2 years) 2 = 16 coupons

Semi-annual coupon payment = ( 0.09 2) $ 1000 = $ 45

Semi-annual yield of the bond = ( 0.10 2 ) = 5%

The price of the bond today is calculated as follows

Bond price = Present value of the semi-annual coupon payments + Present value of the par value

Price of the bond today = $ 945.81

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