Question

Question 12 6 pts Consider a 4-year bond with a face value of 100 USD/bond that pays coupons every six months. It has a yield to maturity of 3.0225% and an annual coupon rate of 3.0000%. What is the bond's price if there are no arbitrage opportunities? (Input your answer with 4 decimals) --

Answer 1

Ans. Face value, F = $100

Coupon rate, c = 3%

=> Coupon, C = c*F = $3

Yield to maturity, y = 3.0225% or 0.030225

Period of maturity, n = 4 years

Thus, price of the bond,

P = C*[(1-1/(1+y)^n]/y + F/(1+y)^n

=> P = 3*[(1-1/(1+0.030225)]/0.030225 + 100/(1+0.030225)^4

=> P = $99.916312

Thus, the price of the bond is $99.916312z

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