Answer to Question #137349 in Finance for Thabiso

Question

How does the equation for valuing a bond change if semiannual payments are made? Find the value of a 10-year, semiannual payment, 10 percent coupon bond if nominal rd =13

Answer 1

$Bond Price= C \times \frac {1- (1+r)-n} {r} + \frac {F} {(1+r)n}$

When semi annual payments are made, n which is the number of periods to maturity is doubled while r which is the yield of the bond is halved

$n= 10 \times 2= 20$

$FV= 1000$

$PMT= \frac {100} {2}= 50$

$r= \frac {13} {2}= 6.5$

Therefore PV = $ 834.72