Question

Assume a par value of $1,000. Caspian Sea plans to issue a 19.00 year, semi-annual pay bond that has a coupon rate of 7.96%. If the yield to maturity for the bond is 8.12%, what will the price of the bond be?

Answer 1

Semiannual interest = $1,000 * 0.0796 * 6/12 = $39.8

The price of the bond is:

Current bond price = $39.8(PVIFA 4.06%,38) + $1,000(PVIF 4.06%,38)

Current bond price = ($39.8 * 19.2019305586) + ($1,000 * 0.22040161907)

Current bond price = $984.64