Question

Compute the price of a 5 percent coupon bond with 20 years left to maturity and...

Compute the price of a 5 percent coupon bond with 20 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semi-annual.) Which statement is correct?

The bond is a premium bond selling at $858.41

The bond is a discount bond selling at $1213.65

The bond is a premium bond selling at $1213.65

The bond is a discount bond selling at $858.41

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Answer #1
                  K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =20x2
Bond Price =∑ [(5*1000/200)/(1 + 6.25/200)^k]     +   1000/(1 + 6.25/200)^20x2
                   k=1
Bond Price = 858.41

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