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?
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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.
This is not one of the mutiple choice answers given?
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.
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