What is the quoted price of a bond that has 4

Finance Dec 23, 2020

What is the quoted price of a bond that has 4.5 years until maturity? The face value of the bond is $5000 and it has a coupon rate of 8.1% compounded semi-annually and a yield rate of 8.6% compounded semi-annually.

Expert Solution

Answer:

Formula-

Price of Bond = C * 1 - (1+r)^-n + F / (1+r)

Where:

C = Coupon payment

r = Yield to maturity

n = Number of periods

F = Face value of bond

Given:

F = $5000

C: 5000*8.1%*6/12 = $202.50,

r: 8.6% * 6/12 = 4.3%,

n: 4.5 * 2 = 9 periods

Putting all the given values in the formula, we get:

Bond value = 202.50 * 1- (1+.043)^-9 + 5000/(1+.043)

Bond value = $4908.32

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