Answer:
The bond's price is $1,304.94
Explanation:
Price of the bond is the present value of all cash flows of the bond. Price of the bond is calculated by following formula:
According to given data
Coupon payment = C = $1,000 x 12% = $120 annually
Coupon payment = C = $120 / 2 = $60 semiannually
Number of periods = n = 2 x 12 years = 24 periods
Current Yield = r = 8% / 2 = 4% semiannually
Price of the Bond = $60 x [ ( 1 - ( 1 + 4% )^-24 ) / 4% ] + [ $1,000 / ( 1 + 4% )^24 ]
Price of the Bond = $60 x [ ( 1 - ( 1 + 0.04)^-24 ) / 0.04 ] + [ $1,000 / ( 1 + 0.04 )^24 ]
Price of the Bond = $60 x [ ( 1 - ( 1.04)^-24 ) / 0.04 ] + [ $1,000 / ( 1.04 )^24 ]
Price of the Bond = $914.82 + $390.12 = $1,304.94
