Question

A company issues a​ ten-year bond at par with a coupon rate of 6.4​% paid​ semi-annually. The YTM at the beginning of the third year of the bond​ (8 years left to​ maturity) is 9.1​%. What is the new price of the​ bond?

Answer 1

Answer:

$\mathbf{current \ price \ of \ the \ bond= \ 848.78}$

Explanation:

The current price of the bond can be calculated by using the formula:

$current \ price \ of \ the \ bond= ( coupon \times \dfrac{ (1- \dfrac{1}{(1+YTM)^{no \ of \ period }})}{YTM} + \dfrac{Face \ Value }{(1+YTM ) ^{no \ of \ period}}$

$current \ price \ of \ the \ bond= ( \dfrac{0.064 \times \ 1000}{2} \times \dfrac{ (1- \dfrac{1}{(1+ \dfrac{0.091}{2})^{8 \times 2}})}{\dfrac{0.091}{2}} + \dfrac{\ 1000 }{(1+\dfrac{0.091}{2} ) ^{8 \times 2}})$

$current \ price \ of \ the \ bond= \ 32 \times 11.19 + \ 490.70$

$current \ price \ of \ the \ bond= \ 358.08+ \ 490.70$

$\mathbf{current \ price \ of \ the \ bond= \ 848.78}$