Question

A bond was issued 3 years ago at a price of $1,040 with a maturity of 6 years, a yield-to-maturity (YTM) of 5.25% compounded semi-annually, and a face value of $1,000 with semi-annualy coupons. What is the price of this bond today immediately after the receipt of today's coupon if the YTM has risen to 6.50% compounded semi-annually?

Answer 1

- Face Value = $1000

No of years to maturity = 6 years

n = 6 years*2 = 12

Semi-annual YTM = 5.25%/2 = 2.625%

Price = $1,040

Calculating the Coupon Payment amount:-

1040 = Coupon payment(10.1806) + $732.76

Coupon Payment = $30.1790

Now, calculating the Bond Price after 3 years,

Semi-annual YTM after 3 years = 6.50%/2 = 3.25%

n= 3 years*2 = 6

Price = $162.14 + $825.39

Price = $987.53

So, the price of this bond today immediately after the receipt of today's coupon is $987.53

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