Question

10. The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR, compounded semiannually. What must its price be

Answer 1

Based on the information given the price is $989.06.

Price

7.6% APR semiannual rate =7.6/2=3.8%

The Cash flows of bond are an annuity of four payments= $35

Face value=$1000

Now let determine the price

Present value=35/(1+.038)^1 + 35/(1+.038)^2+ 35/(1+.038)^3 1000+35(1+.038)^4

Present value=35/(1.038)^1 + 35/(1.038)^2+ 35/(1.038)^3 1000+35(1.038)^4

Present value=$989.06

Inconclusion  the price is $989.06.

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