Question

The ExecUfind Corporation has issued 20minusyear semiannual coupon bonds with a face value of​ $1,000. If the annual coupon rate is​ 10% and the current yield to maturity is​ 12%, what is the​ firm's current price per​ bond?

Answer 1

Answer:

Current price per bond is $849.54

Explanation:

Coupon payment = 1000 x 10% = $100 annually = $50 semiannually

Number of periods = n = 20 years x 2 = 40 periods

Yield to maturity = 12% annually = 6% semiannually

Price of bond is the present value of future cash flows, to calculate Price of the bond use following formula

Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]

Price of the Bond =$50 x [ ( 1 - ( 1 + 6% )^-40 ) / 6% ] + [ $1,000 / ( 1 + 6% )^40 ]

Price of the Bond = $50 x [ ( 1 - ( 1.06 )^-40 ) / 0.06 ] + [ $1,000 / ( 1.06 )^40 ]

Price of the Bond = $752.31 + $97.22

Price of the Bond = $849.54