The bond price is the present value of the principle repayment in 8 years, plus the present value of the interest payments (an annuity) for 8 years

Price = FV / (1 + i)^n + Pmt x (1 - 1 / (1 + i)^n) / i

n=8

i= discount rate% = 5%/2 = 2.5% 6 monthly

FV = 1000

Pmt = interest = 1000 x 7% = 70 =35 every 6 months

Price = 1000 / (1 + 2.5%)^8 + 35 x (1 - 1 / (1 + 2.5%)^8) / 2.5%

Price = 1,071.70

What is the current market price of a bond paying a 7.0% coupon that matures in 8 years? Current market

interest rate (YTM) now is 5.0% for such bonds. (Treat bond interest as paid semi- annually)