Bond price: Kevin Oh is planning to sell a bond that he owns. This bond has four years to maturity and pays a coupon of 10 percent on a semiannual basis. Similar bonds in the current market will yield 12 percent. What will be the price that he will get for his bond? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

To calculate the bond price, we need to use the formula:
Bond Price = (Coupon Payment / Interest Rate) x [1 - 1/(1+Interest Rate)^n]/Interest Rate + Face Value / (1+Interest Rate)^n

Where,
Coupon Payment = $1000 x 10% x (6/12) = $50 (since it pays on a semi-annual basis)
Interest Rate = 12%/2 = 6% (since it pays semi-annually)
n = 4 x 2 = 8 (since it pays semi-annually)
Face Value = $1000

Plugging these values into the formula, we get:
Bond Price = ($50 / 0.06) x [1 - 1/(1+0.06)^8]/0.06 + $1000 / (1+0.06)^8
Bond Price = $938 (rounded to the nearest dollar)

Bond Price: Kevin Oh Is Planning to Sell a Bond