Question

A company issues a​ ten-year bond at par with a coupon rate of 6.4​% paid​ semi-annually. The YTM at the beginning of the third year of the bond​ (8 years left to​ maturity) is 9.1​%. What is the new price of the​ bond?

Answer 1

`\mathbf{current \ price \ of \ the \ bond= \$848.78}`

Step-by-step explanation:

The current price of the bond can be calculated by using the formula:

`current \ price \ of \ the \ bond= ( coupon * ( (1- (1)/((1+YTM)^(no \ of \ period ))))/(YTM) + (Face \ Value )/((1+YTM ) ^(no \ of \ period))`

`current \ price \ of \ the \ bond= ( (0.064 * \$1000)/(2) * ( (1- (1)/((1+ (0.091)/(2))^(8 * 2))))/((0.091)/(2)) + (\$1000 )/((1+(0.091)/(2) ) ^(8 * 2)))`

`current \ price \ of \ the \ bond= \$32 * $11.19 + \$490.70`

`current \ price \ of \ the \ bond= \$358.08+ \$490.70`

`\mathbf{current \ price \ of \ the \ bond= \$848.78}`