For a bond that makes semi-annual coupon payments, the following adjustments must be made to the pricing formula:

The coupon payment is cut in half

The yield is cut in half

The number of periods is doubled

As an example, suppose that a bond has a face value of Rs.1,000, a coupon rate of 8% and a maturity of two years. The bond makes semi-annual coupon payments, and the yield to maturity is 6%. The semi-annual coupon is Rs.40, the semi-annual yield is 3%, and the number of semi-annual periods is four. The bond’s price is determined as follows:

Price of the bond = 40/(1.03)1 + 40/(1.03)2 + 40/(1.03)3 + 1040/(1.03)4

= 38.83 + 37.70 + 36.61 + 924.03 = Rs.1,037.17

Note that in the above instance, the market price is above the face value because the yield is lower than the coupon on the bond. In the fourth tranche, the value of the coupon and that of the principal redemption is considered.