Question

What is the value of a bond that pays a 6% semi-annual coupon, has a face value of $1,000, matures in 20 years, and has a yield to maturity of 8%?

Question 45 options:

	$803.64
	$808.43
	$805.12
	$802.07

Answer 1

Information provided:

Face value= future value= $1,000

Time= 20 years*2= 40 semi-annual periods

Coupon rate= 6%/2= 3%

Coupon payment= 0.03*1,000= $30 per semi-annual period

Yield to maturity= 8%/2= 4% per semi-annual period

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

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 30

I/Y= 4

N= 40

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

The value obtained is 802.07.

Therefore, the value of the bond is $802.07.

Hence, the answer is option d.