Question

A bond that has a face value of $3,000 and coupon rate of 3.40% payable semi-annually was redeemable on July 1, 2021. Calculate the purchase price of the bond on February 10, 2015 when the yield was 3.90% compounded semi-annually.

Round to the nearest cent

Answer 1

Information provided:

Face value= future value= $3,000

Coupon rate= 3.40%/2= 1.70%

Coupon payment= 0.0170*$3,000= $51 per semi-annual period

Time= 2021 - 2015= 6 years*2= 12 semi-annual periods

Yield to maturity= 3.90%/2= 1.95% per semi-annual period

The purchase price of the bond is calculated by computing the present value.

The present value of the bond is calculated by entering the below in a financial calculator:

FV= 3,000

N= 12

PMT= 51

I/Y= 1.95

Press the CPT key and PV to compute the present value.

The value obtained is 2,920.44.

Therefore, the purchase price of the bond is $2,920.44.