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?

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

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.