Question

A bond that pays interest semiannually has a coupon rate of 5.44 percent and a current yield of 4.91 percent. The par value is $1,000. What is the bond's price

Answer 1

The price of the bond is $964.00.

Step-by-step explanation:

A bond's price can be calculated by finding the present value of the bond's future cash flows. In this case, the bond pays a semiannual coupon payment, so there will be 20 cash flows over the bond's life. The bond's current yield is 4.91%, which means the bond pays $49.10 in interest annually ($1,000 * 0.0491). The price of the bond can be calculated by discounting the future cash flows at the yield rate. The formula to calculate the price of the bond is:

Bond Price = (C / (1 + r/2))^n + (F / (1 + r/2))^n

Where:

• C is the coupon payment
• r is the yield rate
• n is the number of periods
• F is the face value of the bond

Plugging in the values for this bond:

Bond Price = (49.10 / (1 + 0.044 / 2))^20 + (1000 / (1 + 0.044 / 2))^20 = $964.00

Answer 2

Results are below.

Step-by-step explanation:

Giving the following information:

Cupon rate= 0.0544/2= 0.0272

YTM= 0.0491/2= 0.02455

The par value is $1,000

We weren't provided with the number of years of the bond. I imagine for 9 years.

To calculate the bond price, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 27.2*{[1 - (1.02455^-18)] /0.02455} + [1,000*(1.02455^18)]

Bond Price​= 391.93 + 646.25

Bond Price​= $1,038.18