Question

Suppose you purchased a $1,000 face value, 15-year bond one year ago. The bond has a 7.125% (annual) coupon rate - but the bonds pay coupons semiannually. You paid $974.24 for the bond last year. However, yields have increased 1%. What is the price of the bond today?
a) $991.33
b) $955.78
c) $896.14
d) $912.85
e) $917.28
f) $1,000

Answer 1

Answer:

Explanation:

From the question, we have the followed parameters;

The Face value=1,000 United States of America Dollar($); yield to maturity= fifteen(15) years; The bond = 7.125 percent (annual) coupon rate; payment for last year = $974.24.

First thing to do is to calculate the market value after one percent extra= 1%+7.125%= 8.125%

Next, we need to calculate the present value of 14 year coupon of 71.25 USD = 573.00+ 1,000/1+ 0.8125^14

=>573.00+322.15

= 895.15

Therefore, the price of the bond today is $ 895.15.