Question

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?

Answer 1

Information provided:

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:

FV= 1,000

PMT= 20

N= 30

I/Y= 3

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.