Question

A 30-year 6% semi-annual coupon bond has a tenor of 12 years and a yield to maturity of 7.000%. If the PAR value of the bond is $1000, what is the price of the bond today?

Answer 1

$875.28

Step-by-step explanation:

We use the Present value formula which is attached in the attachment below:

Provided that

Future value = $1,000

Rate of interest 7% ÷ 2 = 3.5%

NPER = 30 years × 2 = 60 years

PMT = ($1,000 × 6%) ÷ 2 = $30

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after solving this, the present value would be $875.28

Since on semi annual basis, the interest rate is half and the duration is doubled. The same is shown above