A bond offers a coupon rate of 5%, paid semiannually, and has a maturity of 20...

A bond offers a coupon rate of 5%, paid semiannually, and has a maturity of 20 years. If the current market yield is 8%, what should be the price of this bond?

Solutions

Expert Solution

We need to present value of all cash inflow

Since bond interest payment is semi annual interest =5%/2*1000 =$25

Market yield rate is used for calculating PV factor 8%/2 =4%

No of period =20*2 =40 periods

	Cash Flow	PV Factor 4% period 40	Present Value
Interest 1000*5%/2	25	19.7928	$ 494.82
Maturity value	1000	0.2083	$ 208.29
Value of Bond	$ 703.11

ekkarill92 answered 1 year ago

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