Question

Question:

As with any financial instrument, the price of a bond is just the present value of the future cash flows. What is the price of a bond with semiannual coupon payments and the following characteristics?

Coupon rate:			8.00%
Years to maturity:			10
Yield to maturity:			7.50%
Par value:			$               1,000

Since the bond has semiannual payments, the coupon payments will be:

Coupon payments:

Of course, we could have simply entered the coupon payments and par value in the same PV function, making sure that both were negative. This would give us:

Bond price:

Please help answer the above questions: "Coupon payments" and "Bond Price"

Thank you

Answer 1

Par Value = $1,000

Annual Coupon Rate = 8.00%
Semiannual Coupon Rate = 4.00%
Semiannual Coupon = 4.00% * $1,000
Semiannual Coupon = $40

Annual YTM = 7.50%
Semiannual YTM = 3.75%

Time to Maturity = 10 years
Semiannual Period = 20

Using PV function, “=PV(3.75%, 20, 40, 1000)”, we will get -1,034.74

So, bond price is $1,034.74