Question

You are called in as a financial analyst to appraise the bonds of Merck & Company, Inc. The $1,000 par value bonds have a quoted annual interest rate of 5.4%, which is paid semiannually. The yield to maturity on the bonds is 6.4% annual interest. There are 25 years to maturity Compute the price of the bonds based on semiannual analysis.

Answer 1

Particulars	Cash flow	Discount factor	Discounted cash flow
present value Interest payments-Annuity (3.2%,50 periods)	$                         27.00	24.78058	$                669.08
Present value of bond face amount -Present value (3.2%,50 periods)	$                    1,000.00	0.20702	$                207.02
Bond price			$                876.10
Face value			$             1,000.00
Premium/(Discount)			$              (123.90)
Interest amount:
Face value	1,000
Coupon/stated Rate of interest	5.400%
Frequency of payment(once in)	6 months
Interest amount	1000*0.054*6/12=		$                  27.00
Present value calculation:
yield to maturity/Effective rate	6.40%
Effective interest per period(i)	0.064*6/12=		3.200%
Number of periods:
Particulars	Amount
Number of interest payments in a year	2
Years to maturiy	25.0
Number of periods	50

Answer is:

876.10

please rate.