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Dmitry [639]
4 years ago
7

You find a zero coupon bond with a par value of $10,000 and 22 years to maturity. The yield to maturity on this bond is 4.4 perc

ent. Assume semiannual compounding periods. What is the price of the bond?
Business
1 answer:
blsea [12.9K]4 years ago
5 0

Answer:

The price of bond is $3838.49

Explanation:

The price of bond should be calculated on semiannual compounding periods which means that the rate is divided by 2 and years should be multiplied by 2

In mathematically,

Semi annual rate = Rate ÷ 2

                            = 4.4 ÷ 2

                           = 2.2%

And, the semi annual year = total number of years × 2

                                            = 22 × 2

                                            =44

The formula to compute the price of bond is shown below:

= Coupon payment ÷ ( 1+ rate) ^ number of years

= $10,000 ÷ ( 1+ 0.022) ^ 44

= ($10,000 ÷ 1.022) ^ 44

= $3838.49

Hence, the price of bond is $3838.49

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