Question

A bond with a coupon rate of 7.30% has a price that today equals $868.92. The $1000 face value bond pays coupon every 6 month, 30 coupons remain, and a coupon was paid yesterday. Suppose you buy this bond at today's price and hold it so that you receive 20 coupons. You sell the bond upon receiving the last coupon. Find the selling price if the bond's YTM remains constant. Please show all work and formulas without use of financial calculator

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =15x2

868.92 =∑ [(7.3*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^15x2

k=1

YTM% = 8.9

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =5x2

Bond Price =∑ [(7.3*1000/200)/(1 + 8.89/200)^k]     +   1000/(1 + 8.89/200)^5x2

k=1

Bond Price = 936.92