Question

Bond valuationlong dashSemiannual interest   Find the value of a bond maturing in 10 ​years, with a ​$1000 par value and a coupon interest rate of 12​% ​(6​% paid​ semiannually) if the required return on​ similar-risk bonds is 18​% annual interest left parenthesis 9 % paid​ semiannually). The present value of the bond is ​$

Answer 1

Coupon Interest rate =					12%
Semiannual coupon rate					6%
Interest per coupon		(1000*6%) =			$60.00
YTM rate					18%
Semiannual YTM rate =					9%
No. of years					10
No. of periods (10 Years * 2)					20
Calculation of price of bond @ 9% YTM
Annual Interest received =				60.00
Cumulative P.V.F. @ 9 % for 20 Years =
(1- ((1/(1.09)^20)))/0.09				9.128546
Present value of interest received (60*9.128546)					$547.71
Maturity amount received =				1000
P.V.F. @ 9 % for 20 th year =				0.178431
(1/(1+0.09)^20)
Present value of Maturity amount(1000*0.178431)					$178.43
Price of bond					$726.14
So, Price of bond is $726.14.