Question

A bond has a coupon rate of 8.6 percent and 5 years until maturity. If the yield to maturity is 8.2 percent, what is the price of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

$1,015.89

Step-by-step explanation:

Annual coupon = 1000*8.6% =86

Present value of annuity = Annuity[1-(1+interest rate)^-time period]/rate

= 86*[1-(1.082)^-5]/0.082

= 86*3.971751714

Present value of discounting factor=1000/1.082^5

= 674.316359

= 1000*0.674316359

Price of bond = Annual coupon*Present value of annuity factor(8.2%,5) + $1000*Present value of discounting factor(8.2%,5)

Price of bond = 86*3.971751714 + $1000*0.674316359

Price of bond = 341.570647404 + 674.316359

Price of bond = 1015.887006404

Price of bond = $1,015.89