Question

Q3) What is the price of a $1,000 par value, semi-annual coupon bond with 15 years to maturity, a coupon rate of 03.60% and a yield-to-maturity of 08.70%? (1 point)

Answer 1

Solution:-

Par value of bond= $1000

Time to maturity= 15 years

Coupon rate= 3.60%

Yield to maturity = 8.70%

Semiannual interest=( $1000*3.60%)/2=$18

Semiannual YTM (RR)= 8.70%/2 =4.35%

Number of periods (Npr)=15*2= 30

The current price of the bond can be calculated as follows

Current price of bond (P₀)

            =Semiannual interest *PVIFA(RR,Npr)+Maturity value*PVIF(RR,Npr)

           

Substituting the values we get ,

P₀= 18*PVIFA(4.35%,30)+1000*PVIF(4.35%,30)

=18*16.58029+1000*0.278757

=298.4452+278.757

=$577.20

Hence the price of bond = $577.20

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