| We can use the following Yield to Maturity formula to calculate the Price of the bond. | |||||||||
| Yield to Maturity = {C+[(F-P)/n]} / {(F+P)/2} | |||||||||
| Yield to Maturity = 7.5% | |||||||||
| C = semi annual coupon payment = Face value of bond x Semi annual coupon rate = $1000 x 3% = $30 | |||||||||
| F = Face value of bond = $1000 | |||||||||
| P = Price of Bond = ? | |||||||||
| n = semi annual periods to maturity = 3 years x 2 = 6 | |||||||||
| 0.075 = {30+[(1000-P)/6]} / {(1000+P)/2} | |||||||||
| 0.075 = {30+166.67 - 0.1667P} / {500 + 0.5P} | |||||||||
| 37.5 + 0.0375P = 196.67 - 0.1667P | |||||||||
| 0.0204167P = 159.1667 | |||||||||
| P = 779.59 | |||||||||
| Price of bond = $779.59 | |||||||||
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