Assume that you are considering the purchase of a 11year non

Assume that you are considering the purchase of a 11-year, noncallable bond with an annual coupon rate of 8.60%. The bond has a face value of $1000, and it makes semiannual interest payments. If you require an 11.70% yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Show work please

Solution

Hi,

Please find the detailed answer as follows:

Nper = 11*2 = 22 (indicates the period)

PV = ? (indicates the price)

FV = 1000 (indicates the face value)

Rate = 11.70%/2 (indicates semi-annual YTM)

PMT = 1000*8.60%*1/2 = 43 (indicates the amount of interest payment)

Maximum Price = PV(Rate,Nper,PMT,FV) = PV(11.70%/2,22,43,1000) = $810.90

Thanks.