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 Subject: bonds Category: Business and Money > Finance Asked by: fatima1102-ga List Price: \$2.00 Posted: 11 Sep 2005 16:49 PDT Expires: 11 Oct 2005 16:49 PDT Question ID: 566916
 ```A five-year \$1,000 par value bond pays a 6.50% annual coupon. Given a YTM of 8.0%, what is the price of the bond today?```
 Subject: Re: bonds Answered By: omnivorous-ga on 12 Sep 2005 08:58 PDT Rated:
 ```Fatima1102 ? The yield-to-maturity is the real yield of all cash payments and allows us to calculate the net-present value (NPV) of a cash flow. That NPV is the bond price: c/(1 + r) + c/(1 + r)^2 + . . . + c/(1 + r)^n + B/(1 + r)^n = P Where: r = yield-to-maturity or true return (in decimals) c = annual coupon payment (in dollars) n = number of years to maturity B = par value P = purchase price You have: \$6.50 / (1.08) + \$6.50 / (1.1664) + \$6.50 / (1.2597) + \$6.50 / (1.3605) + \$6.50 / (1.4693) + \$1,000 / (1.4693) = \$706.54 Moneychimp.com ?Bond yield-to-maturity? (undated) http://www.moneychimp.com/articles/finworks/fmbondytm.htm Google search strategy: ?yield-to-maturity? bonds Best regards, Omnivorous-GA``` Clarification of Answer by omnivorous-ga on 12 Sep 2005 16:10 PDT ```Fatima1102 -- Celtic_rice is ABSOLUTELY right. The coupons are \$65, making the calculations: \$65 / (1.08) + \$65 / (1.1664) + \$65 / (1.2597) + \$65 / (1.3605) + \$65 / (1.4693) + \$1,000 / (1.4693) = \$940.11 My apologies for any inconvenience that this has caused you. And a big thanks to Celtic_rice!! Best regards, Omnivorous-GA```
 fatima1102-ga rated this answer: `Excellent answer!!`

 ```Fatima, I could tell you in a snap, but I have to ask if you are learning anything from paying for answers to all these homework questions? If you are a Muslim, as your user name suggests, of course, interest on debt is foreign to you, but the relevant mathematics can still be learned. Myoarin```
 ```Omnivorous-ga made a slight error: the coupon should be \$65 each year not \$6.50. Therefore, the price is \$940.109.```