Question

Yan Yan Corp. has a $3,000 par value bond outstanding with a coupon rate of 5 percent paid semiannually and 12 years to maturity. The yield to maturity of the bond is 5.6 percent.

Answer 1

The price of the bond will be given by:
P=total sum (c/(1+ytm)^t)+(per value)/(1+ytm)^n
ytm=0.056
c=coupon=2.5%=0.025×3000=75
t=12 years
this can be written as follows using continous compounding
Bond price, P will be:
P=75e^(0.056*2*1)+75e^(0.056*2*2)+75e^(0.056*3*2)+75e^(0.056*4*2)+...............+75e^(0.056*11*2)+3075e^(0.56*12*2)
=$2844.24