Question

​(Related to Checkpoint​ 9.4)  ​(Bond valuation) A bond that matures in 16 years has a ​$1000 par value. The annual coupon interest rate is 14 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 16 percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually?

Answer 1

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What would be the value of this bond if it paid interest​ annually
we have to use financial calculator to solve this problem
Put in calculator
FV		1000
PMT	1000*14%	140
I		16%
N		16
Compute PV		($886.63)
therefore bond price =			$886.63
What would be the value of this bond if it paid interest​ semiannually
we have to use financial calculator to solve this problem
Put in calculator
FV		1000
PMT	1000*14%/2	70
I	16%/2	8.00%
N		16
Compute PV		($911.49)
therefore bond price =			$911.49