Question

In November 2017, Treasury 4 5/8s of 2042 offered a semiannually compounded yield to maturity of 2.62%. Recognizing that coupons are paid semiannually, calculate the bond's price. Assume face value is $1,000. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

Price of Bond = $1,365.98

Explanation:

Face Value = $1000

Yield to Maturity = 2.62% compounded semiannually

Coupon Rate = 4 5/8 = 4+ 5/8 = 4.625%

Time To Maturity = 2042-2017 = 25 years

Semiannual Coupon Payment = 4.625% *1000/2

Semiannual Coupon Payment = $23.125

Price of Bond = 23.125(P/A,1.31%,50) + 1000(P/F,1.31%,50)

Price of Bond = 23.125*36.514 + 1000*0.5216

Price of Bond = 844.38 + 521.6

Price of Bond = $1,365.98.