Question

You are considering a 25-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 9.3275%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

9.3275 = ((1+Stated rate%/(2*100))^2-1)*100

Stated rate% = 9.1196

K = Nx2

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

k=1

K =25x2

Bond Price =∑ [(10*1000/200)/(1 + 9.1196/200)^k]     +   1000/(1 + 9.1196/200)^25x2

k=1

Bond Price = 1086.15

Using Calculator: press buttons "2ND"+"FV" then assign

PMT = Par value * coupon %/coupons per year=1000*10/(2*100)

I/Y =9.1196/2

N =25*2

FV =1000

CPT PV

Using Excel

=PV(rate,nper,pmt,FV,type)

=PV(9.1196/(2*100),2*25,-10*1000/(2*100),-1000,)