A 5 year bond has a YTM of 7% and a coupon rate of 8%. Assuming...

A 5 year bond has a YTM of 7% and a coupon rate of 8%. Assuming a par value of $1,000 and semi-annual coupon payments, what should this bond be trading for?

Expert Solution

Statement showing Price or Intrinsic Value ( since there is semi annual payment so coupon payment is 10000.08/2=$40, yield is 7/2=3.5% and number of years= 52=10)
Particulars	Time	PVf @3.5%	Amount	PV
Cash Flows (Interest)	1.00	0.9662	40.00	38.65
Cash Flows (Interest)	2.00	0.9335	40.00	37.34
Cash Flows (Interest)	3.00	0.9019	40.00	36.08
Cash Flows (Interest)	4.00	0.8714	40.00	34.86
Cash Flows (Interest)	5.00	0.8420	40.00	33.68
Cash Flows (Interest)	6.00	0.8135	40.00	32.54
Cash Flows (Interest)	7.00	0.7860	40.00	31.44
Cash Flows (Interest)	8.00	0.7594	40.00	30.38
Cash Flows (Interest)	9.00	0.7337	40.00	29.35
Cash Flows (Interest)	10.00	0.7089	40.00	28.38
Cash flows (Maturity Amount)	10.00	0.7089	1,000.00	708.90
Intrinsic Value of Bond or Current Bond Price				1,041.58

Price of bond is 1041.58

jeff jeffy answered 2 years ago

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