Question

Microhard has issued a bond with the following characteristics: Par: $1,000 Time to maturity: 15 years Coupon rate: 7 percent Semiannual coupon payments for questions a and b / Quarterly coupon payments for question c Calculate the price of this bond if the YTM is:

a. 7 percent

b. 9 percent

c. 5 percent

- can someone solve this without using excel please?? Thank you!

Answer 1

a) Semiannual Coupon = $1000*7%/2 = $35

No of coupons = 15*2 =30

Semiannual YTM = 7%/2 = 3.5% or 0.035

So, Price of the bond = 35/0.035*(1-1/1.035^30)+1000/1.035^30 = $1000

b)

Semiannual Coupon = $1000*7%/2 = $35

No of coupons = 15*2 =30

Semiannual YTM = 9%/2 = 4.5% or 0.045

So, Price of the bond = 35/0.045*(1-1/1.045^30)+1000/1.045^30 = $837.11

c)

Quarterly Coupon = $1000*7%/4 = $17.5

No of coupons = 15*4 =60

Semiannual YTM = 5%/4 = 1.25% or 0.0125

So, Price of the bond = 17.5/0.0125*(1-1/1.0125^60)+1000/1.0125^60 = $1210.17