Question

Bond Valuation with Semi-Annual Payments: Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?

Answer 1

Answer:

The current Price of the bond will be 1,006.20

Explanation:

We have to calculate the present value of the bonds cash flows at a 8.5% rate

Present value ofthe interest service:

$C * \frac{1-(1+r)^{-time} }{rate} = PV$

$100 * \frac{1-(1+.085)^{-10} }{0.085} = PV$

PV = $563.9183

Present Value of the principal

$\frac{Principal}{(1 + rate)^{time} } = PV$

$\frac{1,000}{(1 + 0.85)^{10} } = PV$

PV = $422.2854

Now we sum both concepts

422.2854 + 563.9183 = 1006.2037 = 1,006.20