Question

The Sisyphean Company has a bond outstanding with a face value of $5,000 that reaches maturity in 9 years. The bond certificate indicates that the stated coupon rate for this bond is 84% and that the coupon payments are to be made semiannually Assuming the appropriate YTM on the Sisyphean bond is 9.8%, then the price that this bond trades for will be closest to O A. $3,670 O B. $4,588 OC. $5,505 OD. $6,423

Answer 1

Answer: Option B is correct

Face value=$5000
Coupon rate=8.4%
Semiannual coupon rate=8.4%/2=4.20%
Semiannual coupon payment=4.2%*5000=210
Time period=9 years
As the coupon payment is made semiannually, the number of periods=9*2=18
Annual yield to maturity=9.8%, so the semiannual yield to maturity=9.8%/2=4.90%

We can determine the bond value using excel.

A 1 Face value $5,000 2 Coupon payment 210 3 Time period 18 4 Yield to maturity 4.90% 5 Present value= ($4,587.65) 6 Formula used: PV(B4,B3,B2,B1)

So, the present value is $4,587.65 or $4,588 (Rounded to the whole number)