Answer:
At Yield to maturity = 11%
Price = $1,000
Explanation:
As for the provided information we have:
Par value = $1,000
Interest each year = $1,000 [tex]\times[/tex] 11% = $110
Effective interest rate semiannually = 11%/2 = 5.5% = 0.055
Since it is paid semiannually, interest for each single payment = $110 [tex]\times[/tex] 0.5 = $55 for each payment.
Time = 8 years, again for this since payments are semi annual, effective duration = 16
Price of the bond = [tex]C \times \frac{(1 - \frac{1}{(1+i^n)}) }{i} + \frac{M}{(1 + i)^n}[/tex]
Here, C = Coupon payment = $55
i = 0.055
n = Time period = 16
M = Maturity value = Par value = $1,000
Therefore, if yield to maturity = 11% then,
P = [tex]55 \times \frac{1 - \frac{1}{(1 + 0.055)^1^6} }{0.55} + \frac{1,000}{(1 + 0.55)^1^6}[/tex]
= $1,000
