Question

A corporate bond matures in 14 years. The bond has an 8 percent coupon and a par value of $1,000. Interest is paid semiannually. The bond is priced to yeild 6.0%. What is the bond's current price? Hint: Should it be above or below the face value?

Group of answer choices

$987.52

$1,006.57

$1,187.64

$1,199.35

$1,212.24

Answer 1

Statement showing price of bond:
( In case of semi annual bond, yield= 6/2=3%, Coupon rate=8/2=4%, Years=14*2=28
Particulars	Time	PVf @3%	Amount	PV
Cash Flows (Interest)	1.00	0.9709	40.00	38.83
Cash Flows (Interest)	2.00	0.9426	40.00	37.70
Cash Flows (Interest)	3.00	0.9151	40.00	36.61
Cash Flows (Interest)	4.00	0.8885	40.00	35.54
Cash Flows (Interest)	5.00	0.8626	40.00	34.50
Cash Flows (Interest)	6.00	0.8375	40.00	33.50
Cash Flows (Interest)	7.00	0.8131	40.00	32.52
Cash Flows (Interest)	8.00	0.7894	40.00	31.58
Cash Flows (Interest)	9.00	0.7664	40.00	30.66
Cash Flows (Interest)	10.00	0.7441	40.00	29.76
Cash Flows (Interest)	11.00	0.7224	40.00	28.90
Cash Flows (Interest)	12.00	0.7014	40.00	28.06
Cash Flows (Interest)	13.00	0.6810	40.00	27.24
Cash Flows (Interest)	14.00	0.6611	40.00	26.44
Cash Flows (Interest)	15.00	0.6419	40.00	25.67
Cash Flows (Interest)	16.00	0.6232	40.00	24.93
Cash Flows (Interest)	17.00	0.6050	40.00	24.20
Cash Flows (Interest)	18.00	0.5874	40.00	23.50
Cash Flows (Interest)	19.00	0.5703	40.00	22.81
Cash Flows (Interest)	20.00	0.5537	40.00	22.15
Cash Flows (Interest)	21.00	0.5375	40.00	21.50
Cash Flows (Interest)	22.00	0.5219	40.00	20.88
Cash Flows (Interest)	23.00	0.5067	40.00	20.27
Cash Flows (Interest)	24.00	0.4919	40.00	19.68
Cash Flows (Interest)	25.00	0.4776	40.00	19.10
Cash Flows (Interest)	26.00	0.4637	40.00	18.55
Cash Flows (Interest)	27.00	0.4502	40.00	18.01
Cash Flows (Interest)	28.00	0.4371	40.00	17.48
Cash flows (Maturity Amount)	28.00	0.4371	1,000.00	437.10
Fair Price				1,187.64
So correct answer is $1187.64