A $1,000 par bond with a 4% semi-annual coupon has 15 years to maturity trades at a yield of 6%. What would be it’s price?
Par value= future value= $1,000
Coupon rate= 4%/2= 2%
Coupon payment= 0.02*1,000= $20
Time= 15 years*2= 30 semi-annual periods
Yield to maturity= 6%/2= 3% per semi-annual period
The price of the bond is calculated by computing the present value.
The present value is computed by entering the below in a financial calculator:
Press the CPT key and PV to compute the present value.
The value obtained is 803.9956.
Therefore, the price of the bond is $804.
In case of any query, kindly comment on the solution.
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