Question

Microhard has issued a bond with the following characteristics:

Par: $1,000

Time to maturity: 12 years

Coupon rate: 9 percent

Semiannual payments

Calculate the price of this bond if the YTM is: (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Price of the Bond

a. 9 percent $

b. 11 percent $

c. 7 percent $

Answer 1

The question is solved by using a financial calculator,

a.Future value= $1,000

Time= 12 years*2= 24 semi-annual periods

Coupon payment= 9/2= 4.50% 0.045*1,000= $45

YTM is 9%/2= 4.50%

The price of the bond is calculated by entering the below in a financial calculator:

FV= 1,000; PMT= 45; N=24; I/Y= 4.50%

Press CPT and PV to calculate the price of the bond

The price of the bond is $1,000.

b. Price of the bond if YTM is 11%/2= 5.50%

Future value= $1,000

Time= 12 years*2= 24 semi-annual periods

Coupon payment= 9/2= 4.50% 0.045*1,000= $45

The price of the bond is calculated by entering the below in a financial calculator:

FV= 1,000; PMT= 45; N=24; I/Y= 5.50%

Press CPT and PV to calculate the price of the bond

The price of the bond is $868.48.

c. Price of the bond if YTM is 7%/2= 3.50%

Future value= $1,000

Time= 12 years*2= 24 semi-annual periods

Coupon payment= 9/2= 4.50% 0.045*1,000= $45

The price of the bond is calculated by entering the below in a financial calculator:

FV= 1,000; PMT= 45; N=24; I/Y= 3.50%

Press CPT and PV to calculate the price of the bond

The price of the bond is $1,1605.58.