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