7-3: Bond Valuation Bond valuation You are considering a 10-year, $1,000 par value bond. Its coupon...

Question

Question

Answer 1

Answer #1

APR = m * [(1 + EAR)^1/m - 1];m = no. of compounding periods in a year

= 2 * [(1 + 0.1029)^1/2 - 1]

= 2 * [1.0502 - 1] = 2 * 0.0502 = 0.1004, or 10.04%

To find the bond's price, we need to put the following values in the financial calculator:

N = 10 * 2 = 20;

I/Y = 10.04/2 = 5.02;

PMT = (9%/2)*1000 = 45;

FV = 1000;

Press CPT, then PV, which gives us -935.42

Hence, Bond's Price = $935.42

Answer 2

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