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A $8000 bond that pays 6% semi-annually is redeemable at par in 18 years. Calculate the...

A $8000 bond that pays 6% semi-annually is redeemable at par in 18 years. Calculate the purchase price if it is sold to yield 8% compounded semi-annually.

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Answer #1

Bond Price Formula:

Where,
C = Periodic coupon payment,
P = Par value of bond,
r = Yield to maturity
n = Number of periods till maturity
a = compounding frequency (here it is semi annually, that is a =2)

C = Par value * (coupon rate / 2)
= 8000 * 3%
= $240

Substituting the values, we get:

Therefore, purchase price of the bond is  $6,487.34

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