What will be the fair market price of a fiveyear S 1000 par

What will be the fair market price of a five-year, S 1,000 par value bond that makes semi-annual payments has a coupon rate of 8 %, and offers a yield to maturity of 7%? a. $ 1,127.14 Ob.$ 950.00 c. $1,041.58 d. $ 1,058.91

Solution

Par Value = $1000

Coupon Rate = 8% But paymnents are semi-annual. Therefore, Semi-annual Rate = 4%.

Payment per period = 4% of 1000 = $40

YTM = 7%. As payments are semi-annual so, Rate per period = 7% / 2 = 3.5%

Maturity = 5 years. So, Number of Payments = 2 x 5 = 10

Using Financial Calculator,

Enter N= 10, I/Y = 3.5 , PMT = 40, FV = 1000 and Press CPT, then PV.
PV = $1041.58

Therefore, OPTION C.

Note - If you want to know the formula approach, let me know in the comment section.