Question

HHTL Realty issues a bond with a par value of $10,000, a 6.5% coupon rate, and 2 years to maturity. The bond pays semiannual coupons, and has a yield to maturity of 8% APR.

Based on this information, what is the "price" (or DCF value) of this bond?

Answer 1

Par Value = $10,000

Annual Coupon Rate = 6.50%
Semiannual Coupon Rate = 3.25%
Semiannual Coupon = 3.25% * $10,000
Semiannual Coupon = $325

Time to Maturity = 2 years
Semiannual Period = 4

Annual YTM = 8.00%
Semiannual YTM = 4.00%

Price of Bond = $325/1.04 + $325/1.04^2 + $325/1.04^3 + $325/1.04^4 + $10,000/1.04^4
Price of Bond = $325 * (1 - (1/1.04)^4) / 0.04 + $10,000 * (1/1.04)^4
Price of Bond = $325 * 3.629895 + $10,000 * 0.854804
Price of Bond = $9,727.76