Question

 Find the value of a bond maturing in 7 ​years, with a ​$1 comma 000 par value and a coupon interest rate of 9 ​% ​(4.5 ​% paid​ semiannually) if the required return on​ similar-risk bonds is 16 ​% annual interest left parenthesis 8 % paid​ semiannually).

The present value of the bond is:

Answer 1

Given :
Face Value of Bond =	$             1,000.00
Coupon rate semi annual	4.50%
Semi annual Coupon Payment	$                   45.00
Semi Annual Market yield	8%
No of semi annual periods till maturity =	14

PV Annuity factor for 14 periods @8%=(1-1.08^-14)/8%=		8.24424
PV discount factor for 14 periods @8% =1/1.08^14=		0.34046
We can find the PV of Bond by finding the PV of future cash flows from the bond.

Cash flow	Amt $	PVA /PV factor	PV of Cash flows=a*b
Semi annual coupon payments for 14 periods	$                 45.000	8.244237	370.99
Maturity value receivable after 14 semi annual periods	$             1,000.00	0.3404610	340.46
PV of Total Cash flows =			711.45
So Current Bond Price is $711.45