Example: Suppose that a bond has a face value of P100,000and its maturity date is 10 years from now. The coupon rate is5% payable semi-annually. Find the fair price of this bond, assuming that the...

Extracted text: Example: Suppose that a bond has a face value of P100,000and its maturity date is 10 years from now. The coupon rate is5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 4%. Given: Coupon rate r= 5%, payable semi - annually Face Value = 100,000 Time to maturity = 10 years Number of periods = 2(10) = 20 Market rate = 4% The bondholder receives 20 payments of P2,500 each, and P100,000 at t = 10. Present Value of 100,000: F P =- 100000 = 67,556.42 1+ 0.0410 Present Value of 20 payments of Php2500 each: Convert 4% to equivalent semi-annual rate: 1+ jm 0.04 1= (1+=)" -1 - (1+ ) - 1 - 1 = m 2 | = 0.0404