Question

Assume that you are considering the purchase of a 30 year bond with an annual coupon rate of 7.50%. The bond has a face value of $1,000 and makes semiannual interest payments. If you require a 5.75% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for this bond?

Answer 1

Price of Bond = PV of CFs from it.

Period	CF	PVF @2.875%	Disc CF
1	$      37.50	0.9721	$      36.45
2	$      37.50	0.9449	$      35.43
3	$      37.50	0.9185	$      34.44
4	$      37.50	0.8928	$      33.48
5	$      37.50	0.8679	$      32.54
6	$      37.50	0.8436	$      31.64
7	$      37.50	0.8200	$      30.75
8	$      37.50	0.7971	$      29.89
9	$      37.50	0.7748	$      29.06
10	$      37.50	0.7532	$      28.24
11	$      37.50	0.7321	$      27.46
12	$      37.50	0.7117	$      26.69
13	$      37.50	0.6918	$      25.94
14	$      37.50	0.6725	$      25.22
15	$      37.50	0.6537	$      24.51
16	$      37.50	0.6354	$      23.83
17	$      37.50	0.6176	$      23.16
18	$      37.50	0.6004	$      22.51
19	$      37.50	0.5836	$      21.88
20	$      37.50	0.5673	$      21.27
21	$      37.50	0.5514	$      20.68
22	$      37.50	0.5360	$      20.10
23	$      37.50	0.5210	$      19.54
24	$      37.50	0.5065	$      18.99
25	$      37.50	0.4923	$      18.46
26	$      37.50	0.4786	$      17.95
27	$      37.50	0.4652	$      17.44
28	$      37.50	0.4522	$      16.96
29	$      37.50	0.4396	$      16.48
30	$      37.50	0.4273	$      16.02
31	$      37.50	0.4153	$      15.57
32	$      37.50	0.4037	$      15.14
33	$      37.50	0.3924	$      14.72
34	$      37.50	0.3815	$      14.31
35	$      37.50	0.3708	$      13.91
36	$      37.50	0.3605	$      13.52
37	$      37.50	0.3504	$      13.14
38	$      37.50	0.3406	$      12.77
39	$      37.50	0.3311	$      12.42
40	$      37.50	0.3218	$      12.07
41	$      37.50	0.3128	$      11.73
42	$      37.50	0.3041	$      11.40
43	$      37.50	0.2956	$      11.08
44	$      37.50	0.2873	$      10.77
45	$      37.50	0.2793	$      10.47
46	$      37.50	0.2715	$      10.18
47	$      37.50	0.2639	$         9.90
48	$      37.50	0.2565	$         9.62
49	$      37.50	0.2494	$         9.35
50	$      37.50	0.2424	$         9.09
51	$      37.50	0.2356	$         8.84
52	$      37.50	0.2290	$         8.59
53	$      37.50	0.2226	$         8.35
54	$      37.50	0.2164	$         8.12
55	$      37.50	0.2104	$         7.89
56	$      37.50	0.2045	$         7.67
57	$      37.50	0.1988	$         7.45
58	$      37.50	0.1932	$         7.25
59	$      37.50	0.1878	$         7.04
60	$      37.50	0.1826	$         6.85
60	$ 1,000.00	0.1826	$    182.56
Price of Bond			$ 1,248.79