Question

assume a $1000 face value bond has a coupono rate of 8.5% , pays interest semi-annually, and has an eight year life. if investors are willing to accept a 10% rate of return on bonds of eszsimilar quality, what is the present value

Answer 1

K = Nx2

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

k=1

K =8x2

Bond Price =∑ [(8.5*1000/200)/(1 + 10/200)^k]     +   1000/(1 + 10/200)^8x2

k=1

Bond Price = 918.72