Question

You purchased a 20-year bond 15 years ago at a yield to maturity of 7.56%. The bond has a face value of $1,000 and a coupon rate of 9.00%, paid semi-annually. If the investors’ required rate of return on this bond has stayed the same for 15 years, what is the price of the bond today?

• $1,000.00
• $1,058.17
• $1,146.13
• $1,059.94

Answer 1

Given about a bond,

it was purchased 15 years ago,

So, years remaining to maturity = 5 years

Yield to maturity = 7.56%

Face value = $1000

coupon rate = 9% paid semiannually,

So, semiannual coupon payment = (9%/2) of 1000 = $45

So, price of the bond today can be calculated on financial calculator using following values:

FV = 1000

PMT = 45

N = 2*5 = 10

I/Y = 7.56/2 = 3.78

compute for PV, we get PV = -1059.04

So, current price of the bond = $1059.04

There must be a misprinting in option D.