Question

need help with details

the bonds coupon by its current market price also called current yield) Calculate the price of a 5-year, $1,000 face value bond that makes semiannual payments, has a coupon ratelof 8 %, and offers a yield to maturity of 7 %. Recalculate the price assuming a 9 % YTM. What is the general relationship that this problem illustrates?

Answer 1

Price=Coupon rate*Par value/yield*(1-1/(1+yield/2)^(2*n))+Par value/(1+yield/2)^(2*n)

Price of bond at 7%=1000*8%/7%*(1-1/(1+7%/2)^(2*5))+1000/(1+7%/2)^(2*5)=1041.583027

Price of bond at 9%=1000*8%/9%*(1-1/(1+9%/2)^(2*5))+1000/(1+9%/2)^(2*5)=960.4364091

As yield rises, price decreases and if yield falls, price increases
If yield is more than coupon rate, price is less than par
If yield is less than coupon rate, price is more than par