Question

A bond has a face amount of 1,000 and a term of n years. It is bought to yield a nominal rate of 7% convertible semi-annually. The bond will be redeemed for 1,100 at maturity. It pays semi-annual coupons at 6% annual coupon rate. The present value of the coupon is 426.50. What is the price of the bond?

Answer #1

Semi annual rate = 7%/2 = 3.5%

Coupon = 6%*1000 /2 = 30

PV of Coupons = 426.50

Using financial Calculator to calculate number of Periods

I/Y = 3.5%; PMT = 30; PV =-426.50; CPT N

N = 20.00863 or 20 periods

Price of Bond = PV of Coupons + PV of redeemed value = 426.50 +
1100/(1+3.5%)^20.00863 = 979.16

If Number if Period is rounded to 20

then Price of Bond = PV of Coupons + PV of redeemed value = 426.50
+ 1100/(1+3.5%)^20 = 979.32

Please Discuss in case of Doubt

Best of Luck. God Bless

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