Question

You find a $1,000 par bond with a 3.5% semi-annual coupon and 13 years to maturity. If the bond trades at a yield of 6.23%, what should be its current price?

Answer 1

Information provided:

Par value= future value= $1,000

Coupon rate= 3.5%/2= 1.75%

Coupon payment= 0.0175*1,000= $17.50

Time= 13 years*2= 26 semi-annual periods

Yield to maturity= 6.23%/2= 3.1150% 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= 17.50

N= 26

I/Y= 3.1150

Press the CPT key and PV to compute the present value.

The value obtained is 759.18

Therefore, the current price of the bond is $759.18

In case of any query, kindly comment on the solution.