You are contemplating buying a 4 3/4% coupon bond that makes semi-annual interest payments. The bond matures in 10 years and the yield-to-maturity currently is 4.18%. How much are you willing to pay for a face value of $1,000,000 of this bond? In addition, how much do you stand to gain or lose if YTM goes up by 0.25%?© BrainMass Inc. brainmass.com June 4, 2020, 12:31 am ad1c9bdddf
The price should be the present value of interest and principal discounted at the yield to maturity. The semi annual interest is 1,000 X 4 3/4% /2 = $23.75 and is an annuity. The principal amount is ...
The solution explains how to calculate the price of a bond and the gain or loss when interest rate changes.