A bond has 8% coupon rate (coupon paid semiannually) and it has 8 years left to maturity. The face value is $1000. If the yield to maturity is 10%, what is the bond price? (10 points)
| Maturity | 8 years | ||||
| Par value of bond | $1,000 | ||||
| Coupen rate annually | 8% | ||||
| Semi annually coupen rate | 4% | ||||
| Total period = | 16 | ||||
| Coupen Amount | 1000* 4% | ||||
| $ 40.00 | |||||
| YTM is per year = | 10.0% | ||||
| YTM for the period = | 5.00% | ||||
| PVAF ( 5% , 16periods) = | 1/(1.05)^1 + 1/1.05)^2 + 1/(1.05)^3……………. 1/(1.05)^16 | ||||
| 10.8378 | |||||
| Price of bond = | 40 * 10.8378 +1000*1/(1.05)^16 | ||||
| $ 433.51 | +1000*.4581 | ||||
| $ 891.61 |
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