Question

The Sisyphean Company has a bond outstanding with a face value of $5,000 that reaches maturity in 15 years. The bond certificate indicates that the stated coup rate for this bond is 8.2% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 10.4%, then the price that this bond trades for will be closest to: O A. $5,843 OB. $4,173 OC. $3,339 D. $5,008

Answer 1

Coupon = (8.2% of 5,000) / 2 = 205

Rate = 10.4% / 2 = 5.2%

Number of periods = 15 * 2 = 30

Price = Coupon * [1 - 1 / (1 + r)^n] / r + FV / (1 +r)^n

Price = 205 * [1 - 1 / (1 + 0.052)^30] / 0.052 + 5,000 / (1 +0.052)^30

Price = 205 * [1 - 0.218538] / 0.052 + 1,092.692117

Price = 205 * 15.028115 + 1,092.692117

Price = $4,173