A company issues a ten-year bond at par with a coupon rate of 6% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 7.8%. What is the new price of the bond?

Question

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The bond's price is calculated using the present value of its future cash flows, discounted at the new YTM of 7.8%. With a semiannual coupon of 3% (half of 6%), the bond's price is approximately $894.35.

A Company Issues a Ten-Year Bond at Par with a Coupon