A bond will pay 5000 at maturity in 9 years It also makes se

A bond will pay $5,000 at maturity in 9 years. It also makes semiannual interest payments of $400 until maturity. If the discount rate is 7% compounded semiannually, what should be the market price of the bond?

Solution

Interest compounded semi annually
Par value of bond is 5000
Coupon rate on bond is 0.04
YTM on bond is 0.035
Years till maturity are 18
present value interest factor of annuity (PVIFA)

Price = coupon rate x par value x PVIFA(ytm%, n) + par value x PVIF(ytm%, n)
PVIFA(0.035, 18) = 13.1896817271
PVIF(0.035, 18) = 0.53836113955
Price = 0.04 x 5000 x 13.1896817271 + 5000 x 0.53836113955
Price = 2637.93634543 + 2691.80569775
Price = $5,329.74