Bond valuationlong dashSemiannual interest Find the value of a bond maturing in 4 years, with a $1 comma 000 par value and a coupon interest rate of 9 % (4.5 % paid semiannually) if the required return on similar-risk bonds is 15 % annual interest (7.5 % paid semiannually).

824.28

Explanation:

Market price of a bond is the total sum of discounted coupon cashflow and par value at maturity. This is a 4-year bond with semi-annual payment so there will be 8 coupon payment in total. Let formulate the bond price as below:

Bond price = [ (Coupon rate/2) x Par] / (1 + Required return/2) + [ (Coupon rate/2) x Par] / (1 + Required return/2) ^2 + ... + [ (Coupon rate/2) x Par + Par] / (1 + Required return/2) ^8

Putting all the number together, we have

Bond price = [ (4.5%) x 1000] / (1 + 7.5%) + [ (4.5%) x 1000] / (1 + 7.5%) ^2 + ... + [ (4.5%) x 1000 + 1000] / (1 + 7.5%) ^8

= 824.28