You are considering the purchase of a $1,000 par value bond with a 6.5% coupon rate...

You are considering the purchase of a $1,000 par value bond with a 6.5% coupon rate (with coupon paid semiannually) that matures in 12 years. If the bond yield is 8%, what is the bond’s current price? Whether this bond trades at a premium or at a discount?

Expert Solution

Coupen Rate ( per year) =	6.5%
Coupen rate (semi annually) =	3.25%
Maturity =	12
Period =	24
Face Value =	$1,000
Coupen amoount semi annually =	1000*3.25%
	$ 32.50
YTM Annually	8%
Semi annually	4%
Present value Annuity Factor ( 3%, 16) =	1/(1.04)^1 + 1/1.04)^2 +……………. 1/(1.04)^24
	15.2469

price of bond =	Coupen * PVAF(YTM, n) + Redemption value*PVF(YTM,n)
	32.515.2469 + 1000 1/ (1.04)^24
	$ 495.524	+1000*.3901
	$ 885.62

Price of Bond is $ 885.62 the Bond is selling at Discount

jeff jeffy answered 1 year ago

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