Question

The yield to maturity of a $ 1 comma 000$1,000 bond with a 7.0 %7.0% coupon​ rate, semiannual​ coupons, and two years to maturity is 7.6 %7.6% ​APR, compounded semiannually. What is its​ price?

Answer 1

The answer is $989.06

Step-by-step explanation:

This is a semiannual paying coupon, meaning it makes coupon payment twice a year.

N(Number of periods) = 4 periods( 2years x 2)

I/Y(Yield to maturity) = 3.8percent( 7.6percent ÷ 2)

PV(present value or market price) = ?

PMT( coupon payment) = $35 ( [7 percent÷ 2] x $1,000)

FV( Future value or par value) = $1,000.

We are using a Financial calculator for this.

N= 4; I/Y = 3.8; PMT = 35; FV= $1,000; CPT PV= -989.06

Therefore, the market price of the bond is $989.06