Answer:
= $1,063.28
Explanation:
Answer:
Explanation:
The price of a bond is the present value (PV) of the future cash inflows expected from the bond discounted using the yield to maturity.
The yield on the bond- 7%
Coupon rate - 9.375%
The price of the bond can be calculated as follows:
Step 1
PV of interest payment
Semi-annual coupon rate = 9.375%/2 = 4.6875%
semi-annual Interest payment
=( 4.6875%×$1000)=
= $46.875 per six month
Semi-annual yield = 7%/2 = 3.5%
PV of interest payment
= A ×(1- (1+r)^(-n))/r
= 46.875× (1-(1.035)^(-3×2))/0.035)
= 46.875× 5.32855302
=$ 249.775
Step 2
PV of redemption value (RV)
PV = RV× (1+r)^(-n)
= 1,000 × (1+0.035)^(-2× 3)
= 813.500
Step 3
Price of bond =
249.77 + 813.50
= $1,063.28
