Ameritech has just issued a $1,000 par value bond that will mature in 10 years.This bond pays interest of $45 every six months.If the annual yield to maturity of this bond is 8%, what is the price of the Ameritech bond if the market is in equilibrium?

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The bond pays $45 every six months, so the semi-annual coupon rate is 4.5%. The yield to maturity is 8% annually, or 4% semi-annually. Using the present value formula for bonds, the price is calculated as the present value of the annuity of coupon payments plus the present value of the par value, which results in approximately $1,067.96.

Ameritech Has Just Issued a $1,000 Par Value Bond That