Homework question help

Accounting
Tutor: None Selected Time limit: 1 Day

Consider a 6 year corporate bond. The bond has a face value of $1,000 and has an annual coupon rate of 6.8%. The yield to maturity of the bond is 8.2%. What is the fair price of the bond today?

Jul 2nd, 2015

Thank you for the opportunity to help you with your question!

Coupon value = 68 and payment every 6 months will be 34.

yield rate i = 8.2%, for 6 months, we will have 8.2/200=0.041.

number of coupon payments = 6*2= 12

Hence, price = 34[(1-1.041^-12)/0.041] +1000*1.041^-12 = 934.68             Ans.

Please let me know if you need any clarification. I'm always happy to answer your questions.
Jul 2nd, 2015

This is not one of the mutiple choice answers given?

Jul 2nd, 2015

Coupon payment is annual or semi-annual.  I have assumed semi-annual payment. If it is annual, price will be different. For annual coupon payment, price is 935.67.

Jul 2nd, 2015

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