Question

They have a bond outstanding that makes MONTHLY coupon payments instead of SEMIANNUALLY. The stated coupon rate on the bond is 6% and the yield to maturity on the 5-year bond is also 6%. What is the price of the bond?

Answer 1

K = Nx12

Bond Price =∑ [(Monthly Coupon)/(1 + YTM/12)^k]     +   Par value/(1 + YTM/12)^Nx12

k=1

K =5x12

Bond Price =∑ [(6*1000/1200)/(1 + 6/1200)^k]     +   1000/(1 + 6/1200)^5x12

k=1

Bond Price = 1000