Answer:
The current value of the Bond is $807.03
Explanation:
The price of the bond can be calculated by taking the present values of all cash flows of the bond. These cash flows include the coupon payment and the maturity payment of the bond.
According to the given data
Face value of the bond = F = $1,000
Coupon payment = C = $1,000 x 4.5% x 6/12 = $22.5 Semiannually
Number of periods = n = 25 years x 2 = 50 period
s
YTM = 6% / 2 = 3%
Price of the bond is calculated by using following formula:
Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Placing all the available values in the formula
Price of the Bond = $22.5 x [ ( 1 - ( 1 + 3% )^-50 ) / 3% ] + [ $1,000 / ( 1 + 3% )^50 ]
Price of the Bond = $578.92 + $228.11
Price of the Bond = $807.03
