Question

A 6.75% coupon rate bond makes annual interest rate payments. Par value is $1,000.
The bond matures in 12 years. The required rate of return is 7.25%. What is the current price

a 960.81 


b 960.37 


c 958.25 


d 948.22 


Refer to the previous question. What if the bond pays semi-annual interest payment. What is the value of a semi-annual bond.

a 960.81 


b 960.37 


c 958.25 


d 948.22 


Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =12

Bond Price =∑ [(6.75*1000/100)/(1 + 7.25/100)^k]     +   1000/(1 + 7.25/100)^12

k=1

Bond Price = 960.81

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =12x2

Bond Price =∑ [(6.75*1000/200)/(1 + 7.25/200)^k]     +   1000/(1 + 7.25/200)^12x2

k=1

Bond Price = 960.37