Question

What is the price of a 17- year bond paying an annual coupon rate of 8.7%, but paying it semiannually, per face (par) value of 1,000 if the annual market rates for these bonds are 11.6%

Answer 1

Coupon Amount = $ 1000*8.7%/2 = $ 43.5

Given annual market rate is 11.6%

Assuming that 11.6% rate is for semi annual compunding

Interest rate for 6 month is 11.6%/2 = 5.8%

No.of Coupon payments = 17*2= 34

S.No	Cash flow	Disc @ 5.8%	DCF
1	$43.50	0.9452	$41.12
2	$43.50	0.8934	$38.86
3	$43.50	0.8444	$36.73
4	$43.50	0.7981	$34.72
5	$43.50	0.7543	$32.81
6	$43.50	0.7130	$31.02
7	$43.50	0.6739	$29.31
8	$43.50	0.6370	$27.71
9	$43.50	0.6020	$26.19
10	$43.50	0.5690	$24.75
11	$43.50	0.5378	$23.40
12	$43.50	0.5084	$22.11
13	$43.50	0.4805	$20.90
14	$43.50	0.4542	$19.76
15	$43.50	0.4293	$18.67
16	$43.50	0.4057	$17.65
17	$43.50	0.3835	$16.68
18	$43.50	0.3625	$15.77
19	$43.50	0.3426	$14.90
20	$43.50	0.3238	$14.09
21	$43.50	0.3061	$13.31
22	$43.50	0.2893	$12.58
23	$43.50	0.2734	$11.89
24	$43.50	0.2584	$11.24
25	$43.50	0.2443	$10.63
26	$43.50	0.2309	$10.04
27	$43.50	0.2182	$9.49
28	$43.50	0.2063	$8.97
29	$43.50	0.1949	$8.48
30	$43.50	0.1843	$8.02
31	$43.50	0.1742	$7.58
32	$43.50	0.1646	$7.16
33	$43.50	0.1556	$6.77
34	$1,043.50	0.1471	$153.45
	Total		$786.76

So the price of the bond should be $ 786.76

Hence the price of the bond is $ 786.76.

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