Question

Assume that you are considering the purchase of a 10-year, noncallable bond with an annual coupon rate of 9.0%. The bond has a face value of $1,000, and it makes semiannual coupon payments. If you require an 8.5% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Answer 1

maximum price you should be willing to pay for the bond	1,033.24
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Please find below the answer
Statementshowing Computations
Paticulars	Amount
PV of Coupon payments = 45*13.29437	598.25
PV of Face value to be received at end of 10 Years = 1000*.43499	434.99
Market price of bond	1,033.24
Time	PVF at 4.25%
0.50	0.95923
1.00	0.92013
1.50	0.88262
2.00	0.84663
2.50	0.81212
3.00	0.77901
3.50	0.74725
4.00	0.71679
4.50	0.68757
5.00	0.65954
5.50	0.63265
6.00	0.60686
6.50	0.58212
7.00	0.55839
7.50	0.53562
8.00	0.51379
8.50	0.49284
9.00	0.47275
9.50	0.45348
10.00	0.43499
PVF for 10 Years	13.29437