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    Price of a bond

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    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%?

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    Solution Preview

    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 ...

    Solution Summary

    The solution explains how to calculate the price of a bond and the gain or loss when interest rate changes.