Homework Answers
We can find the price of bond using bond price formula:
Bond Price = coupon * (1 - (1+yield rate)^-n)/yield rate + face value/(1 + yield rate)^n
Lets take face value of bond is $100
n is year to maturity = 10 years
yield rate = 4.5% + spread
= 4.5% + .9%
= 5.4%
Coupon = 5% of $100
= $5
Bond price = 5 * (1 - 1.054^-10)/.054 + 100/(1.054)^10
= $96.97
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