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

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