In: Finance
A $1,000 bond with a coupon rate of 5% paid semi-annually has 7 years to maturity and a yield to maturity of 9%. The price of the bond is closest to $________. Input your answer without the $ sign and round your answer to two decimal places.
Information provided:
Par value= future value (FV)= $1,000
Time (N)= 7 years*2 = 14 semi-annual periods
Coupon rate= 5%/ 2= 2.5%
Coupon payment= 0.025*1,000= $25 per semi-annual period
Yield to maturity (I/Y)= 9%/2 = 4.50% per semi-annual period
The price of the bond is calculated to compute the present value.
The present value of the bond is calculated by entering the below in a financial calculator:
FV= 1,000
N= 14
PMT= 25
I/Y= 4.50
Press the CPT key and PV to compute the present value.
The value obtained is 795.54.
Therefore, the present value of the bond is $795.54.