How much should you be prepared to pay for a $1,000 10-year bond with a 6% coupon, semiannual payments, and a yield of 7.5%, compounded semiannually?

Question

Quizplus · Accepted Answer

The bond's price can be calculated using the present value of its future cash flows, which include the semiannual coupon payments and the face value at maturity. With a 6% annual coupon rate, the semiannual coupon payment is $30. Using a yield of 7.5% compounded semiannually (3.75% per period), the present value of these cash flows results in a bond price of approximately $895.78.

How Much Should You Be Prepared to Pay for a $1,000