Given:
coupon
rate of 3.7 percent paid semiannually and 16 years to maturity.
yield to
maturity on this bond is 3.9 percent
the bond
has a par value of $5,000
1.
Determine
the Number of Coupon Payments:
16
years * 2(semiannually) = 32 coupon payments
2.
Determine
the Value of Each Coupon Payment:
Coupon
rate: 3.7% / 2 = 1.85%
Coupon
payment: $1,000 x 1.85% = $18.50
3.
Determine
the Semi-Annual Yield:
Required
yield: 3.9% / 2 = 1.95%
4.
Plug
the Amounts Into the Formula:
Bond Price = 18.50 [ 1 – [1/(1+0.0195)^32]] / 0.0195 + 1000 / (1+0.0195)^32
Bond
Price = 18.50 [ 1 – (1/1.855)] / 0.0195
+ 1000 / 1.855
Bond
Price = 18.50 [ 1 – 0.5391] / 0.0195 + 539.03
Bond
Price = 18.50 (0.4609 / 0.0195) + 539.03
Bond
Price = 18.50 (23.6359) + 539.03
Bond
Price = 437.26415 + 539.03
Bond
Price = 976.29415 or $976.30
