# Price of a bond

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 Preview

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 ...

#### Solution Summary

Calculates the price of a bond at different coupon rates.