Question

Tong corporation's bonds have 5 years to maturity with $1000 par value, assume that this bond pays coupon interest of 8% with semiannual compounding. YTM is 9%. What is bond's current price? Answer to the nearest cent

Answer #1

**Solution**

Semi Annual Coupon = 1000*8%/2 = 40

Semi Annual Yield = 9/2 = 4.5%

Period |
Cash Flow |
Discounting Factor[1/(1.045^year)] |
PV of Cash Flows(cash flows*discounting factor) |

1 | 40 | 0.956937799 | 38.27751196 |

2 | 40 | 0.915729951 | 36.62919805 |

3 | 40 | 0.876296604 | 35.05186416 |

4 | 40 | 0.838561344 | 33.54245374 |

5 | 40 | 0.802451047 | 32.09804186 |

6 | 40 | 0.767895738 | 30.71582953 |

7 | 40 | 0.734828458 | 29.39313831 |

8 | 40 | 0.703185127 | 28.12740508 |

9 | 40 | 0.672904428 | 26.91617711 |

10 | 40 | 0.643927682 | 25.75710728 |

10 | 1000 | 0.643927682 | 643.927682 |

Price of the Bond =Sum of PVs |
960.4364091 = 960.44 |

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$

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