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Assume a par value of $1,000. Caspian Sea plans to issue a 19.00 year, semi-annual pay bond that has a coupon rate of 8.09%. If the yield to maturity for the bond is 7.68%, what will the price of the bond be?

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Answer:

Price of Bond  is 1,031.36

Explanation:

Step 1. Given information.

Par value $1.000

Issue to 19 year

Coupon rate 8.09%

Yield maturity 7.68%

Step 2. Formulas needed to solve the exercise.

Price of Bond = PV of Coupons+PV of Par Value

Step 3. Calculation.

Number of Periods =8*2 =16

Semi annual coupon =8.11%*1000/2 =40.55

Semi annual YTM =7.58%/2 =3.79%

Price of Bond  =40.55*((1-(1+3.79%)^-16)/3.79%)+1000/(1+3.79%)^16 =1031.36

Step 4. Solution.

Price of Bond  is 1,031.36

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