You are considering the purchase of a $1 comma 000 par value bond with a coupon...
You are considering the purchase of a $1 comma 000 par value bond with a coupon rate of 5.1% (with interest paid semiannually) that matures in 12 years. If the bond is priced to yield 9%, what is the bond's current price?
Homework Answers
Price of a bond is mathematically represented as:
where P is price of a bond with periodic coupon C, n periods to maturity, periodic YTM i and M face value.
For this bond,
M = $1000, n = 12 * 2 = 24 semi-annual periods, i = 9%/2 = 4.5% (semi-annually), C = 5.1% * $1000/2 = $25.5
P = 369.63 + 347.70
P = $717.34
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