Question

a 10-year bond, $1,000 face value bond with a 8% coupon rate and semi-annual coupons has a yield to maturity of 12%. the bond should be trading at the price of? round to nearest cent

Answer 1

Information provided:

Face value= future value= $1,000

Time= 10 years*2= 20 semi-annual periods

Coupon rate= 8%/2= 4%

Coupon payment= 0.04*1,000= $40 per semi-annual period

Yield to maturity= 12%/2= 6% per semi-annual period

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 40

I/Y= 6

N= 20

Press the CPT key and PV to compute the present value.

The value obtained is 770.60.   

Therefore, the bond at a price of $770.60.