Question #269017

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.

1
Expert's answer
2021-11-26T05:19:05-0500

bond price = Cn(1+YTM)n+P(1+i)n\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,

Cn is coupon payment in the nth period,

YTM is interest rate or required yield,

P is par value of the bond.


n=62=12n=6\cdot2=12

Cn=10000.15=Php 150C_n=1000\cdot0.15=Php\ 150

YTM=0.086/12=0.04YTM=0.08\cdot6/12=0.04

P=10000.095=Php 95P=1000\cdot0.095=Php\ 95


bond price = n=112150(1+0.04)12+95(1+0.15)12=Php 1585.31\displaystyle{\sum^{12}_{n=1}}\frac{150}{(1+0.04)^{12}}+\frac{95}{(1+0.15)^{12}}=Php\ 1585.31


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