Question

a treasury bond has an annual coupon rate of 5% that is paid semi-annually. the Face Value of the bond is $1000 and it has 10 years to maturity with a yield to maturity of 6% (expressed as an apr with semi annual compounding) commpute the price of the bond.

Answer 1

Price of the Bond = $ 925.61

Face Value                    = $1,000

Coupon Amount = $1,000 x 2.50% = $25 [Semi annual compounding]

Yield to maturity = 6% / 2 = 3% [Semi annual compounding]

Maturity Period    = 10 Years x 2 = 20 Years [Semi annual compounding]

Price of the Bond = Present Value of the coupon amount + Present Value of the Face Value

= $25 x (PVIFA 3%, 20 Years) + $1,000 x (PVIF 3%, 20 Years)

= ($25 x 14.8774749) + ($1,000 x 0.553675)

= $371.94 + 553.67

= $925.61 [Rounded to whole Dollar]