Question

assume a $1000 face value bond had a coupon rate of 8.5% pays interest seni annually and had an eight year life.if investors are willing to accept a 10% rate of return on the bonds of similar quality, what is the present value of this bond

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