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A bond with a face value of $2,500 with a coupon rate of of 14% payable...

A bond with a face value of $2,500 with a coupon rate of of 14% payable semiannually is redeemable after 7.5 years. The bold is sold to have a yeild of 7.2% convertible semiannually. The discount on the bond is $283.12. Find the price of the bond.

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Answer #1

Value of a bond is the present value of its cash flows. The cash flows are the coupon payments and the face value receivable on maturity

Value of bond is calculated using PV function in Excel :

rate = 7.2%/2 (Semiannual YTM of bonds = annual YTM / 2)

nper = 15 (Number of semiannual coupon payments remaining until maturity = years to maturity * 2 = 7.5 * 2 = 15)

pmt = 2500 * 14% / 2 (semiannual coupon payment = face value * coupon rate / 2)

fv = 2500 (face value receivable on maturity)

PV is calculated to be $3,472.05

Price of bond = value of bond - discount

Price of bond = $3,472.05 - $283.12

Price of bond = $3,188.93

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