A bond has a 15-year maturity, a 7.25% semiannual coupon, and a par = $1,000. The...

A bond has a 15-year maturity, a 7.25% semiannual coupon, and a par = $1,000. The yield to maturity (r_d) is 6.20%, and semiannual compounding. What is the bond’s price?

a. $1,047.91

b. $1,074.50

c. $1,101.58

d. $1,129.21

Solutions

Expert Solution

Bond's Price = Coupen Amount * PVAF( half yearly ytm, Number of half years ) + Face value * PVIF( half yearly ytm, Number of half years )

= ( 1000 * 7.25% * 6/12 ) * PVAF( 6.20%/2, 15 * 2 ) + 1000 * PVIF( 6.20%/2, 15 * 2 )

= 36.25 * PVAF( 3.10%, 30 ) + 1000 * PVIF( 3.10%, 30 )

= 36.25 * [ 1/ 1.0310 + ..... + 1/ 1.0310³⁰ ] + 1000 * [ 1 / 1.0310³⁰ ]

= 36.25 * 19.3495 + 1000 * 0.4002

= $ 1101.58 Answer

jeff jeffy answered 2 years ago

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