As with most bonds, consider a bond with a face value of $1,000. The bond's maturity...

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As with most bonds, consider a bond with a face value of $1,000. The bond's maturity...

As with most bonds, consider a bond with a face value of $1,000. The bond's maturity is 12 years, the coupon rate is 13% paid semiannually, and the discount rate is 4%. What is the estimated value of this bond today? Enter your answer in dollars, rounded to the nearest cent.

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Answer 1

Answer #1

Face Value = $1,000

Annual Coupon Rate = 13.00%
Semiannual Coupon Rate = 6.50%
Semiannual Coupon = 6.50% * $1,000
Semiannual Coupon = $65

Time to Maturity = 12 years
Semiannual Period = 24

Annual YTM = 4.00%
Semiannual YTM = 2.00%

Current Price = $65 * PVIFA(2.00%, 24) + $1,000 * PVIF(2.00%, 24)
Current Price = $65 * (1 - (1/1.02)^24) / 0.02 + $1,000 * (1/1.02)^24
Current Price = $65 * 18.913926 + $1,000 * 0.621721
Current Price = $1,851.13

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Answer 2

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