Question

Merck issued bonds with a maturity of 14 years merck issued those bonds one year ago the bonds carried a coupon interest rate of 6.90% the bonds make semi annual interest payments the yield to maturity on the bonds is 5.20% what is the current bond price?

Answer #1

Let the face value be $ 1000

semiannual interest : 1000*.069*6/12 = 34.50

semiannual yield = 5.2*6/12= 2.6%

years remaining to maturity : 14-1=13

semiannual months = 13*2=26

Current price : [PVA 2.6%,26* Interest ]+[PVF 2.6%,26* Face value]

=[18.72844*34.50]+ [ .51306*1000]

= 646.13+ 513.06

= $ 1159.19

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