A coupon bond pays interest semi-annually, matures in five years, has a par value of $1,000, a coupon rate of 12%, and an effective annual yield to maturity of 10.25%. The price the bond should sell for today is

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The bond pays $60 every six months (12% of $1,000 annually, divided by 2). The yield to maturity is 10.25% annually, which is approximately 5.0625% semi-annually. Using the present value formula for bonds, the price is calculated as the present value of the annuity (coupon payments) plus the present value of the par value, resulting in approximately $1,077.20.

A Coupon Bond Pays Interest Semi-Annually, Matures in Five Years