Question

Tecunltd Corporation has issued bonds that have a 9 percent coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5 percent. What is the price of the bonds

Answer 1

Answer:

$1051.7

Explanation:

Semi-annual coupon payments = $1000 x 9% x 6/12 = $45

Using financial calculator, we have the following inputs:

PMT = $45 (semi-annual coupon payments)

n = 16 (bonds mature in 8 years, total payments is 8x2 = 16)

I/Y = 4.25    (YTM = 8.5% per annum = 4.25% semi-annually)

FV = $1045 (face value + semi-annual coupon payment = 1000+45 =1045)

PV = ? (Price of the bond)

PV = $1051.7