Question #137349

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

Expert's answer

"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

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