Question The price of the bond is computed as shown below:

The coupon payment is computed as follows:

= Coupon rate / 2 x \$ 1,000 (Since the payments are semi annual hence divided by 2)

= 8.6% / 2 x \$ 1,000

= \$ 43

The YTM is computed as follows:

= 12% / 2 (Since the payments are semi annual hence divided by 2)

= 6% or 0.06

The n is computed as follows:

= 5 x 2 (Since the payments are semi annual hence multiplied by 2)

= 10

So, the price of the bond will be as follows:

= \$ 43 / 1.061 + \$ 43 / 1.062 + \$ 43 / 1.063 + \$ 43 / 1.064 + \$ 43 / 1.065 + \$ 43 / 1.066 + \$ 43 / 1.067 + \$ 43 / 1.068 + \$ 43 / 1.069 + \$ 43 / 1.0610 + \$ 1,000 / 1.0610

= \$ 874.88 Approximately

Feel free to ask in case of any query relating to this question

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