Question

Consider a bond (with par value = $1,000) paying a coupon rate of 10% per year semiannually when the market interest rate is only 7% per half-year. The bond has three years until maturity. a. Find the bond's price today and six months from now after the next coupon is paid. (Round your answers to 2 decimal places.)

Answer 1

Answer:

The bond price today is $904.67 , while it is $918.00  in six months's time

Step-by-step explanation:

In calculating the price , I discounted the future cash flows of the bond by the discounting factor given as (1+r)^n, where n is the period of cash flow, r is the semi-annual rate of return at 7%.

The future cash flows are simply receipts of coupon interest and the principal at redemption.

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