Answer to Question #269017 in Financial Math for Ayana

Question

A Php1,000, 9.5% MWDR Inc. bond has a semi-annual coupon rate of 15%. This matures after 6 years and the required rate of return is 8%. Find the bond price.

Answer 1

bond price = $\sum\frac{C_n}{(1+YTM)^n}+\frac{P}{(1+i)^n}$

where

n is period which takes values from 0 to the nth period till the cash flows ending period,

C_n is coupon payment in the nth period,

YTM is interest rate or required yield,

P is par value of the bond.

$n=6\cdot2=12$

$C_n=1000\cdot0.15=Php\ 150$

$YTM=0.08\cdot6/12=0.04$

$P=1000\cdot0.095=Php\ 95$

bond price = $\displaystyle{\sum^{12}_{n=1}}\frac{150}{(1+0.04)^{12}}+\frac{95}{(1+0.15)^{12}}=Php\ 1585.31$