Question

a bond has a face value of $1000 and 14 years until maturity. the bond has a 3% APR coupon with semi- annual coupon payments. currently, investors seek a 6% APR yield to maturity to hold the bond. what is the current trading price of the bond?

Answer #1

**The value of the bond is computed as shown
below:**

**The coupon payment is computed as follows:**

= 3% / 2 x $ 1,000 (As the payments are semi annually, hence divided by 2)

**= $ 15**

**The YTM will be as follows:**

= 6% / 2 (As the payments are semi annually, hence divided by 2)

**= 3% or 0.03**

**N will be as follows:**

= 14 x 2 (As the payments are semi annually, hence multiplied by 2)

**= 28**

**So, the price of the bond is computed as
follows:**

**Bonds Price = Coupon payment x [ [ (1 - 1 / (1 +
r)**^{n}**] / r ] + Par
value / (1 + r)**^{n}

= $ 15 x [ [ (1 - 1 / (1 + 0.03)^{28} ] / 0.03 ] + $
1,000 / 1.03^{28}

= $ 15 x 18.76410823 + $ 437.0767532

**= $ 718.54**

**Do ask in case of any doubts.**

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