Compute the price of a 6.4 percent coupon bond with 10 years left to maturity an

Question

Compute the price of a 6.4 percent coupon bond with 10 years left to maturity and a market interest rate of 10.6 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Compute the price of a 6.4 percent coupon bond with 10 years left to maturity and a market interest rate of 10.6 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Explanation / Answer

Let the face value of bond be $1000

Bond price = Present value of interest payments @ 5.3% + Present value of bond maturity amount

= [32 x Cumulative PVF@5.3% for 20 periods] + [1000 x PVF@5.3% for 20th period]

= [32 x 12.151] + [1000 x 0.356]

= $744.83

This bond is at discount.

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