Consider a bond with exactly three years to maturity,a face value of $100 and a coupon interest rate of 6.6% p.a. ,payable half yearly.If the required yield is 7.2% p.a. ,what is the price of the bond?
A)$98.40
B)$98.04
C)$98.00
D)Cannot be calculated as not enough information is provided.

Question

Quizplus · Accepted Answer

The price of the bond can be calculated using the following formula:Bond Price = (C / r) * (1 - 1 / (1 + r)^n) + FV / (1 + r)^nwhere:C = coupon paymentr = required yieldn = number of years to maturityFV = face valueIn this case, we have:C = $100 * 6.6% / 2 = $3.30r = 7.2% / 2 = 3.6%n = 3FV = $100Plugging these values into the formula, we get:Bond Price = (3.30 / 0.036) * (1 - 1 / (1 + 0.036)^3) + 100 / (1 + 0.036)^3= $98.04Therefore, the price of the bond is $98.04.

Consider a Bond with Exactly Three Years to Maturity,a Face