Question

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:please give step by step solutions!

		915.99
		1051.48
		949.60
		900.23

Answer 1

We know that,

Price of a bond = Present value of all semi-annual coupons and face value discounted at semi-annual ytm.

Face value = 1000

Semi-annual coupon amount = 0.07*1000/2 = 35

Semi-annual ytm = 4.125%

Number of payments = 10*2 = 20

Price of a bond = 35/(1+0.04125)^1 + 35/(1+0.04125)^2 + 35/(1+0.04125)^3 + 35/(1+0.04125)^4 + 35/(1+0.04125)^5 +............... 35/(1+0.04125)^20 + 1000/(1+0.04125)^20

Price of a bond = 915.99 Answer

First option is correct.