Question

(Bond valuation) A bond that matures in 17years has a ​$1 comma 000par value. The annual coupon interest rate is 8percent and the​ market's required yield to maturity on a​ comparable-risk bond is 16 percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually?

a.  The value of this bond if it paid interest annually would be

​

.

​(Round to the nearest​ cent.)

Answer 1

a

K = N

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

k=1

K =17

Bond Price =∑ [(8*1000/100)/(1 + 16/100)^k]     +   1000/(1 + 16/100)^17

k=1

Bond Price = 540.1

b

K = Nx2

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

k=1

K =17x2

Bond Price =∑ [(8*1000/200)/(1 + 16/200)^k]     +   1000/(1 + 16/200)^17x2

k=1

Bond Price = 536.52