A. What is the price of a $1,000 par value bond with a 6% coupon rate paid semiannually, if the bond is priced to yield 5% and it has 9 years to maturity? b. What would be the price of the bond if the yield rose to 7%.
c. What is the current yield on the bond if the YTM is 7%?

a.

Bond Price = $1071.766818 rounded off to $1071.77

b.

Bond Price = $934.0515914 rounded off to $934.05

c.

Current Yield = 0.06423 or 6.423%

Explanation:

a.

To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,

Coupon Payment (C) = 1000 * 0.06 * 6/12  = $30

Total periods (n) = 9 * 2 = 18

r or YTM = 0.05 * 6/12 = 0.025 or 2.5%

The formula to calculate the price of the bonds today is attached.

Bond Price = 30 * [( 1 - (1+0.025)^-18) / 0.025]  + 1000 / (1+0.025)^108

Bond Price = $1071.766818 rounded off to $1071.77

b.

Replacing YTM or r with = 7% * 6/12 = 3.5% or 0.035 in the above formula with everything else being constant, we calculate the price to be,

Bond Price = 30 * [( 1 - (1+0.035)^-18) / 0.035]  + 1000 / (1+0.035)^108

Bond Price = $934.0515914 rounded off to $934.05

c.

The current yield is the coupon or interest payment made by the bond over a year which is expressed as a percentage of its current price.

Current Yield = (30 * 2) / 934.05

Current Yield = 0.06423 or 6.423%

answer; property tax payment made in july and december;