Question

A 9.5% coupon bearing bond pays interest semi-annually and has a maturity of 20 years. If the annual yield to maturity is 5.8%, what is the current price of this bond? (Answer to the nearest penny.)

Answer 1

Par value= future value= $1,000

Time= 20 years*2= 40 semi-annual periods

Coupon rate= 9.50%/2= 4.75%

Coupon payment= 0.0475= $47.50

Yield to maturity= 5.8%/2= 2.90%

The question is solved with the help of a financial calculator.

The current price of the bond is calculated by entering the below in a financial calculator:

FV= 1,000; N= 40; PMT= 47.50; I/Y= 2.90

Press CPT and PV to calculate the current price of the bond.

The current price of the bond is $1,434.62.