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20 December, 16:13

The Sisyphean Company has a bond outstanding with a face value of $ 5 comma 000 $5,000 that reaches maturity in 5 5 years. The bond certificate indicates that the stated coupon rate for this bond is 9.1 9.1 % and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 8 8 %, then the price that this bond trades for will be closest to:

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  1. 20 December, 16:40
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    Answer: $5,219.59905

    the price that the bond traded for would be closest to

    $5,220 (rounded to whole number)

    Explanation:

    Using the price of bond formula below:

    Price = C * 1 - [ (1+r) ^-n] / r + F / (1+r) ^n

    C = coupon rate = 9.1% of face values ($5,000)

    F = Face value (par value) = $5,000

    n = number of years to maturity; 5

    r = YTM (yield to maturity) = 8% = 0.08

    Price = 455 * 1 - [ (1+0.08) ^-5]/0.08 + 5,000 / (1+0.08) ^5

    Price = 455 * 1 - [ (1.08) ^-5]/0.08 + 5,000 / (1.08) ^5

    Price = 455 * (1 - 0.680583197) / 0.08 + 5,000 / 1.46932808

    Price = 455 * (0.319416803) / 0.08 + 3,402.91598

    Price = 1,816.68307 + 3,402.91598

    Price = $5,219.59905

    ≈$5,220 to the nearest whole number.
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