Question

Anheuser-Busch has issued a bond with the following characteristicS maturity: 24 vears, coupon rate: 5.9% (paid semi-annually), face value: 51000. Your investment

advisor has told you that the yield-to-maturity on this bond is 6.2-96. What should be the price of this bond

Answer 1

Given, Maturity period = 24 Years

Coupon rate = 5.9 %

Yield to Maturity = 6.2 %

Face value = 51000

Coupon amount to be paid semi - annually = 51000 * 5.9% * (6/12) = 1504.5

We know that,

Price of bond = Present value of all the inflows

End of year	Coupon Amount	PV @ 6.2% p.a	Present value
0.5	1504.5	0.9699	1459
1	1504.5	0.9408	1415
1.5	1504.5	0.9125	1373
2	1504.5	0.8850	1332
2.5	1504.5	0.8584	1292
3	1504.5	0.8326	1253
3.5	1504.5	0.8076	1215
4	1504.5	0.7833	1178
4.5	1504.5	0.7598	1143
5	1504.5	0.7369	1109
5.5	1504.5	0.7148	1075
6	1504.5	0.6933	1043
6.5	1504.5	0.6724	1012
7	1504.5	0.6522	981
7.5	1504.5	0.6326	952
8	1504.5	0.6136	923
8.5	1504.5	0.5951	895
9	1504.5	0.5772	868
9.5	1504.5	0.5599	842
10	1504.5	0.5430	817
10.5	1504.5	0.5267	792
11	1504.5	0.5109	769
11.5	1504.5	0.4955	745
12	1504.5	0.4806	723
12.5	1504.5	0.4662	701
13	1504.5	0.4521	680
13.5	1504.5	0.4385	660
14	1504.5	0.4254	640
14.5	1504.5	0.4126	621
15	1504.5	0.4002	602
15.5	1504.5	0.3881	584
16	1504.5	0.3765	566
16.5	1504.5	0.3651	549
17	1504.5	0.3542	533
17.5	1504.5	0.3435	517
18	1504.5	0.3332	501
18.5	1504.5	0.3232	486
19	1504.5	0.3135	472
19.5	1504.5	0.3040	457
20	1504.5	0.2949	444
20.5	1504.5	0.2860	430
21	1504.5	0.2774	417
21.5	1504.5	0.2691	405
22	1504.5	0.2610	393
22.5	1504.5	0.2531	381
23	1504.5	0.2455	369
23.5	1504.5	0.2381	358
24	1504.5	0.2310	348
Total Present Value	37322

Hence, Price of the bond = 37322