Face Value(FV) = $1000
Time Period = 10 years
Coupon (C) = 5% = $50
Yield to Maturity (Y) = 6%
Price of Bond = Present Value of Future Cash Flows
=Present value of ( Coupon Payment + Face Value on Maturity)
=
=
= 50*(1/1.06)(1-(1/1.06)^10)/(1-(1/1.06) + 1000/(1.06)^10 [ based of sum of finite GP i.e.
with a = 1/1.06 and r=1/1.06
= (50/1.06)*(0.441605)/0.056604 + 1000/1.79085
= 47.17*7.802 + 558.395
=368.005 + 558.395
= 926.4
Thus Bond price is $926.40
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