Question

An investor who owns a bond with a 9% coupon rate that pays interest semiannually and matures in three years is considering its sale. If the required rate of return on the bond is 11%, calculate the price of the bond per 100 of par value is closest to

The following information relates to Questions 15 and 16

Bond	Coupon Rate	Maturity (years)
A	6%	10
B	6%	5
C	8%	5

All three bonds are currently trading at par value.

Answer 1

Price of the bond needs to be calculated using PV function in EXCEL

=PV(rate,nper,pmt,fv,type)

Please remember that coupons pays semiannually

rate=required rate/2=11%/2=5.5%

nper=2*3 year=6 semi-annual periods

pmt=semi-annual coupon=(coupon rate*face value)/2=(9%*100)/2=9/2=4.5

fv=par value=100

=PV(5.5%,6,4.5,100,0)=$95

The price of the bond trades at 95% to par value.

2. If all the bonds tardes at par, the yield to maturity/required rate equals to the coupon rate. I explained just beacuse there is no question