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Math Help - Bond Pricing Question

  1. #1
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    Bond Pricing Question

    Hi the following question is from my textbook. Can someone go through it step by step? Thanks!

    An 8% bond wit 18 years to maturity has a yield of 9%. What is the price of this bond?

    My approach was: Assuming a standard 1000 face value bond.
    8% bond -> $80 coupon. Assuming one coupon payment per year. Then plugging into the bond value eqn with c=80, t=18, and r=.09, I get $700.45. However the book's solution was $911.70

    Thanks!
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  2. #2
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    Oct 2007
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    You get $700.45 because you only did half of the calculation!!

    take into account the face value value of the bond by calculating 1000/(1.09^18) and add that to your answer of $700.45 and you get the correct answer of approx $912.
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