Question

What is the present value of a $1000 par value bond that pays 7% coupon rate, payable semi-annually and it matures in 15 years? The yield to maturity for this bond is 6%. $1,224.20 $1,102.18 $1,098.00 $1,097.12

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =15x2

Bond Price =∑ [(7*1000/200)/(1 + 6/200)^k]     +   1000/(1 + 6/200)^15x2

k=1

Bond Price = 1098