Question

Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have a quoted annual interest rate of 7 percent and the interest is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 15 years to maturity.

Compute the price of the bonds based on semiannual analysis

appendix d 7% 15 years 9.447

appendix b I=10% 15 years 0.239

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =15x2

Bond Price =∑ [(7*1000/200)/(1 + 10/200)^k]     +   1000/(1 + 10/200)^15x2

k=1

Bond Price = 769.41