Question

# The price of a ten-year semi-annual pay bond with a par value of \$1,000 and a...

The price of a ten-year semi-annual pay bond with a par value of \$1,000 and a 7 percent annual coupon and yield to maturity of 8.25 percent is closest to:

The coupon payment is computed as follows:

= 7% / 2 x \$ 1,000 (Since the payments are semi annually, hence divided by 2)

= \$ 35

The YTM will be as follows:

= 8.25% / 2 (Since the payments are semi annually, hence divided by 2)

= 4.125% or 0.04125

N will be as follows:

= 10 x 2 (Since the payments are semi annually, hence multiplied by 2)

= 20

So, the price of the bond is computed as follows:

Bonds Price = Coupon payment x [ [ (1 - 1 / (1 + r)n ] / r ] + Par value / (1 + r)n

= \$ 35 x [ [ (1 - 1 / (1 + 0.04125)20 ] / 0.04125 ] + \$ 1,000 / 1.0412520

= \$ 35 x 13.44113095 + \$ 445.5533483

= \$ 915.99 Approximately

Feel free to ask in case of any query relating to this question

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