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Bond Valuation

Determine the price of a Canadian government bond as of January 1, 2007 with face value F=$1000, YTM of r=5%, a semi annual coupon of 6.375% if the bond matures on December 31, 2011.

i got p= 920.70

with function 1000/(1+0.05/2)^10 + (1000*0.06375/2)/0.05 * [ 1- 1/(1+0.05/2)^10]

however if i follow the formula the mid part should be (1000*0.0675)/0.05 but the answer will be $1060.15 which higher than face value...

which one is right?

Solution Preview

Since the YTM is lower than the face value, the price will be higher than then ...

Solution Summary

The solution explains how to determine the price of a bond