**Solution:**

*Annual Coupon Payments*

Assuming the face-value is $1000 for a Period of 5 years and bond yield = 4%

(Annual) coupon payments = 1000 * 6% = 60

Now, we use the Price of bond formula to calculate the present value of the coupons and then sum the present value of the face value:

Price of Bond = PV(bond) =PV(coupons)+PV (Final Payment of Face Value)

PV (bond) = 60 * [ 1/.04 – 1/.04*(1.04) ^5] + 1000/ (1.04) ^5

= $1089.04

*Suppose instead these bonds pay semi-annually coupons and the yield is the semi-annual compounded rate*

Period = 5 years to 10 semesters

Yield = 4% to 2% semi-annual

Coupon payments = semi-annual = 1,000*3% = 30

Price of bond = PV (Bond) = 30* [1/.02-1/.02*(1.02) ^10)] + 1000/ (1.02) ^10 =

= $1089.83