A semi-annual bond has a face value of $1,000, an annual coupon rate of 4

Finance Apr 03, 2021

A semi-annual bond has a face value of $1,000, an annual coupon rate of 4.60%, an yield to maturity of 8.1%, makes 2 (semi-annual) coupon payments per year, and 10 periods to maturity (or 5 years to maturity). Determine the price of this bond.

Expert Solution

We can calculate the price of bond by using the following formula in excel:-

=-pv(rate,nper,pmt,fv)

Here,

PV = Price of bond

Rate = 8.1%/2 = 4.05% (semiannual)

Nper = 5*2 = 10 periods (semiannual)

Pmt = Coupon payment = $1,000*4.60%/2 = $23

FV = $1,000

Substituting the values in formula:

= -pv(4.05%,10,23,1000)

= $858.41

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