Question

what is the price of a 5 year bond that has a coupon rate of 7% with each coupon paid semi annually. The current market rate is 6%. Assume a par value of 1000

Answer 1

The answer is $1,042.65

Step-by-step explanation:

Coupon payment being done semiannually means it is paid twice in a year

N(Number of periods) = 10 periods ( 5 years x 2)

I/Y(Yield to maturity) = 3 percent( 6 percent ÷ 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= 10; I/Y = 3; PMT = 35; FV= $1,000; CPT PV= -1,042.65

Therefore, the market price of the bond is $1,042.65