Answer:
Current price per bond is $849.54
Explanation:
Coupon payment = 1000 x 10% = $100 annually = $50 semiannually
Number of periods = n = 20 years x 2 = 40 periods
Yield to maturity = 12% annually = 6% semiannually
Price of bond is the present value of future cash flows, to calculate Price of the bond use following formula
Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Price of the Bond =$50 x [ ( 1 - ( 1 + 6% )^-40 ) / 6% ] + [ $1,000 / ( 1 + 6% )^40 ]
Price of the Bond = $50 x [ ( 1 - ( 1.06 )^-40 ) / 0.06 ] + [ $1,000 / ( 1.06 )^40 ]
Price of the Bond = $752.31 + $97.22
Price of the Bond = $849.54
