Question

What is the price of a bond (to the nearest cent) with 16 years to maturity, 7.9% coupon rate, semiannual payments, par of $1000, and the yield to maturity of 6.3%?

Answer 1

Semi annual required yield = 6.3%/2 = 3.15%

Number of semi annual periods = 16*2 = 32

Bond price is equal to the present value of all future interest payments and the principal amount

= 1000*7.9%*1/2*PVAF(3.15%, 32 periods) + 1000*PVF(3.15%, 32 periods)

= 39.5*19.9788 +1000*0.3707

= $1,159.8626

Hence, the answer is $1,159.86