Question

An 8% semiannual coupon bond matures in 6 years. The bond has a face value of $1,000 and a current yield of 8.3356%.

What is the bond's price? Do not round intermediate calculations. Round your answer to the nearest cent.
$  

What is the bond's YTM? (Hint: Refer to Footnote 6 for the definition of the current yield and to Table 7.1) Do not round intermediate calculations. Round your answers to two decimal places.

Answer 1

Calculation of Bond Price

BP = (C_n/(1+YTM)ⁿ) + P/(1+i)ⁿ

C_n - coupon rate in the n^th period

YTM - yield

P - face value

i - yield

= 40/(1.08) + 40/(1.08)² + 40/(1.08)³ + 40/(1.08)⁴ + 40/(1.08)⁵ + 40/(1.08)⁶ +1000/(1.08)⁶

=74.074+68.587+63.506+58.802+54.447+50.414+630.1696

=184.915+630.170=$815.085

Calculation of YTM

YTM = nFace value/Current Price -1

= 12.468