The price of the bond can be calculated using the following formula:
Price = (Coupon payment / (1 + Yield)^Time) + (Coupon payment / (1 + Yield)^(Time + 1)) + ... + (Coupon payment + Par value / (1 + Yield)^(Time + n))
Where:
Coupon payment = Par value x Coupon rate / 2
Yield = Yield to maturity / 2
Time = Years remaining until maturity x 2
n = Number of coupon payments remaining until maturity (42 in this case)
Plugging in the given values:
Coupon payment = 1,000 x 8% / 2 = 40
Yield = 14% / 2 = 7
Time = 21 x 2 = 42
Price = (40 / (1 + 7%)^2) + (40 / (1 + 7%)^3) + ... + (40 + 1,000 / (1 + 7%)^42)
Price = $482.80
Therefore, the price of the bond is $482.80.
Compute the price of a $1,000 par value, 8 percent (semi-annual payment) coupon bond with 21 years remaining until maturity assuming that the bond's yield to maturity is 14 percent? (Round your answer to 2 decimal places and record your answer without dollar sign or commas).
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