Question

Assume that you are considering the purchase of a 15-year bond with an annual coupon rate of 9.5%. The bond has face value of $1,000 and makes semiannual interest payments. If you require a 8% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Answer 1

Price of Bond = PV of CFs from it.

Period	CF	PVF @4%	Disc CF
1	$      47.50	0.9615	$      45.67
2	$      47.50	0.9246	$      43.92
3	$      47.50	0.8890	$      42.23
4	$      47.50	0.8548	$      40.60
5	$      47.50	0.8219	$      39.04
6	$      47.50	0.7903	$      37.54
7	$      47.50	0.7599	$      36.10
8	$      47.50	0.7307	$      34.71
9	$      47.50	0.7026	$      33.37
10	$      47.50	0.6756	$      32.09
11	$      47.50	0.6496	$      30.86
12	$      47.50	0.6246	$      29.67
13	$      47.50	0.6006	$      28.53
14	$      47.50	0.5775	$      27.43
15	$      47.50	0.5553	$      26.38
16	$      47.50	0.5339	$      25.36
17	$      47.50	0.5134	$      24.39
18	$      47.50	0.4936	$      23.45
19	$      47.50	0.4746	$      22.55
20	$      47.50	0.4564	$      21.68
21	$      47.50	0.4388	$      20.84
22	$      47.50	0.4220	$      20.04
23	$      47.50	0.4057	$      19.27
24	$      47.50	0.3901	$      18.53
25	$      47.50	0.3751	$      17.82
26	$      47.50	0.3607	$      17.13
27	$      47.50	0.3468	$      16.47
28	$      47.50	0.3335	$      15.84
29	$      47.50	0.3207	$      15.23
30	$      47.50	0.3083	$      14.65
30	$ 1,000.00	0.3083	$    308.32
Max Price of Bond	$ 1,129.69