Question

Calculate the price of a 3.25% coupon bond that matures in 8 years if the market interest rate is 6 percent (Assume semiannual compounding and $1,000 par value)

Answer 1

Bond price formula:

Where,
C = Periodic coupon payment,
P = Par value of bond,
r = Market interest rate
n = Years to maturity

Since it is semi-annual compounding:
C = 1000 * (3.25% / 2) = $16.25
r = 6% / 2 = 3% = 0.03
n = 8 * 2 = 16

Therefore,

Therefore, the price of the bond is $827.28