Question

Weismann Co. issued 19-year bonds a year ago at a coupon rate of 11 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 7 percent, what is the current bond price?

Answer 1

Number of remaining periods = 18 * 2 = 36

Coupon = (11% of 1000) / 2 = 55

Rate = 7% / 2 = 3.5%

Current bond price = Coupon * [1 - 1 / (1 + r)^n] / r + FV / (1 + r)^n

Current bond price = 55 * [1 - 1 / (1 + 0.035)^36] / 0.035 + 1000 / (1 + 0.035)^36

Current bond price = 55 * [1 - 0.289833] / 0.035 + 289.832717

Current bond price = 55 * 20.290486 + 289.832717

Current bond price = $1,405.81