Question

1.     Pakistan State Oil (PSO) issues a bond with a par value of PKR1,000, 15 years to maturity, and a coupon rate of 5 percent paid annually. If the yield to maturity is 4 percent, what is the current price of the bond?

Answer 1

The current price of the bond is:

$P = 50×\frac{1 - 1.04^{-15}} {0.04} + \frac{1,000} {1.04^{15}} = PKR1,111.18.$