Question

g A company issues a ten-year bond at par with a coupon rate of 6.5% paid semi-annually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.6%. What is the new price of the bond

Answer 1

$880.31

Step-by-step explanation:

Here for computing the new price of the bond we use the present value formula i.e. to be shown in the attachment

Given that,

Assuming Future value = $1,000

Rate of interest = 8.6% ÷ 2 = 4.3%

NPER = 8 years × 2 = 16

PMT = $1,000 × 6.5% ÷ 2 = $32.50

The formula is shown below:

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

So, after applying the above formula, the new price of the bond is $880.31