Question

You are considering a 30-year, $1,000 par value bond. Its coupon rate is 11%, and interest is paid semiannually. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

If you require an "effective" annual interest rate (not a nominal rate) of 7.27%, how much should you be willing to pay for the bond? Do not round intermediate steps. Round your answer to the nearest cent.

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =30x2

Bond Price =∑ [(11*1000/200)/(1 + 7.27/200)^k]     +   1000/(1 + 7.27/200)^30x2

k=1

Bond Price = 1452.84