WISTA Berhad issued bonds which have a coupon rate of 8%, par value of RM1,000 and will mature in 3 years

Price of the bond can be calculated by the following formula:

Bond price = Present value of interest payment + Present value of bond payment at maturity

Semi annual bond interest = 8% * $1000  = $80

Bond interest payments will be annual every year, so it is an annuity. Bond payment at maturity is a one time payment. The interest rate that will be used in calculating the required present values will be the annual interest rate, which is 7%, with 3 periods.

Now,

First we will calculate the present value of interest payments:

For calculating the present value, we will use the following formula:

PVA = P * (1 - (1 + r)^-n / r)

where, PVA = Present value of annuity, P is the periodical amount = $80, r is the rate of interest = 7% and n is the time period = 3

Now, putting these values in the above formula, we get,

PVA = $80 * (1 - (1 + 7%)^-3 / 7%)

PVA = $80 * (1 - ( 1+ 0.07)^-3 / 0.07)

PVA = $80 * (1 - ( 1.07)^-3 / 0.7)

PVA = $80 * ((1 - 0.81629787689) / 0.07)

PVA = $80 * (0.1837021231 / 0.07)

PVA = $80 * 2.62431604442

PVA = $209.94

Next, we will calculate the present value of bond payment at maturity:

For calculating present value, we will use the following formula:

FV = PV * (1 + r%)ⁿ

where, FV = Future value = $1000, PV = Present value, r = rate of interest = 7%, n= time period = 3

now, putting theses values in the above equation, we get,

$1000 = PV * (1 + 7%)³

$1000 = PV * (1 + 0.07)³

$1000 = PV * (1.07)³

$1000 = PV * 1.225043

PV = $1000 / 1.225043

PV = $816.30