Question

You are interested in investing in a five-year bond that pays a 7.2 percent coupon rate with interest to be received semiannually. Your required rate of return is 9.0 percent. What is the most you would be willing to pay for this bond? (Round answer to 2 decimal places, e.g. 15.25.) Present value $

Answer 1

Price of bond	Interest payment*(1-((1+r)^-n)/r) + Face value*(1/(1+r)^n)
where r represents yield to maturity and n represents number of years.
Assuming the par value of bond is $1,000.
Interest payment	$36.00	1000*(7.2%/2)
No of payments (n)	10	5*2
Semi-annual yield ( r)	4.50%	9%/2
Price of bond	36*((1-(1.045^-10))/0.045)+1000*(1/1.045^10)
Price of bond	36*7.912718+1000*0.643928
Price of bond	$928.79
Present value	$928.79