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Goody's bonds pay a 8 percent annual coupon rate. The bonds mature in 13 years. The...

Goody's bonds pay a 8 percent annual coupon rate. The bonds mature in 13 years. The bond pays interest semiannually. What is the price per bond if the face value is $1,000 and the yield to maturity is 10 percent?   (Round your answer to two decimal places. Do not enter dollar signs.)

Solutions

Expert Solution

Calculation of Price of Bond (B0):

We know that,

[Where,

B0 = Price of Bond Today

I = Interest

R = Disount rate OR Yield to maturity

n = Number Of Periods

MV= Maturity Value i.e Face Value of Bond**]\

**Since no addtional Information is given on maturity Value, We will ALWAYS assume that Bond Matures at PAR.

Now,

IN CASE OF SEMI-ANNUAL COMPOUNDING : Following THREE things are required:

Therefore,

(by using calculator)

PVAF (0.05, 26 periods) = Present Value Annuity Factor (0.05, 26 periods) = 14.37519

PVF (0.05, 26th period) = Present Value Factor (0.05, 26th period) = 0.28124

Therfore, Price of Bond = 856.25

jeff jeffy answered 2 years ago
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