Question

An 8 percent annual coupon, noncallable $1,000 bond has ten years until it matures and a yield to maturity of 9.1 percent. What should be the price be?

Answer 1

Hello,

Here is the solution -

The formula for calculating bond price is -

where C = Coupon Amount = 8% of 1000 = $80

i = YTM = 9.1% = 0.091

n = no.of periods of coupon payment = 10 (because $ 80 coupon is paid annually for 10 years)

M = face value of bond = $1000

Input the above values in the formula - we get -

Bond Price = 80 *[ [1 - [ 1/(1+0.091)¹⁰]]/0.091] + 1000/(1+0.091)^{10 ₌} $929.72