A 5% coupon, 18-year annual bond has a yield to maturity of 6.2%. Assuming the par value is $1,000 and the YTM does not change over the next year, what will the price of the bond be today

Price of Bond=$871.997

Explanation:

The price of a bond is the present value (PV) of the future cash inflows expected from the bond discounted using the yield to maturity.

Price of Bond = PV of interest payment + PV of redemption value

PV of interest payment

interest payment = 5% * 1,000 = $50

PV = A * (1 - 1+r) ^ (-n) / r

r - 6.2%, n - 18, A - 50

PV = 50 * (1 - 1.062^ (-18)) / 0.062=533.341

PV of redemption

PV = FV * (1+r) ^ (-n)

PV = 1,000 * 1.062^ (-18) = 338.655

Price of the stock = 533.3419 + 338.655

Price of Bond=$871.997