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Price of a bond

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Microhard has issued a bond with the following characteristics:
Principal $1,000
Time to maturity: 20 years
Coupon rate: 8 percent, compounded semiannually
Semiannual payments

Calculate the price of this bond if the stated annual interest rate, compounded semiannually, is

a. 8 percent
b. 10 percent
c. 6 percent

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Solution Summary

Calculates the price of a bond at different coupon rates.

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Microhard has issued a bond with the following characteristics:
Principal $1,000
Time to maturity: 20 years
Coupon rate: 8 percent, compounded semiannually
Semiannual payments

Calculate the price of this bond if the stated annual interest rate, compounded semiannually, is

a. 8 percent
b. 10 percent
c. 6 percent

a To calculate the price of the bond we need to calculate / read from tables the values of
PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
PVIF( n, r%)= =1/(1+r%)^n

Price of bond
Coupon ...

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