Question

Assume a corporation's bond has 19 years remaining until maturity. The coupon interest rate is 8.9% and the bond pays interest semi-annually. Assume bond investors' required rate of return on the bond is 9.6%. What would be the expected market price of this bond. (Assume a $1000 par value.)

Answer 1

Number of payments = 38

FV = 1000

Semi annual coupon amount = 0.089 * 1000 / 2 = 44.5

Semi annual YTM = 4.8%

Price = Present value of all semi annual coupon and face value discounted at semi annual ytm.

Price = 44.5/(1+0.048)^1 + 44.5/(1+0.048)^2 + 44.5/(1+0.048)^3 + 44.5/(1+0.048)^4 + 44.5/(1+0.048)^5 + 44.5/(1+0.048)^6 + 44.5/(1+0.048)^7 + 44.5/(1+0.048)^8 + 44.5/(1+0.048)^9 +.............. 44.5/(1+0.048)^38 + 1000/(1+0.048)^38

= 939.36 Answer

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