Question

Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 16 years, have a face value of $1,000, and a yield to maturity of 9%. What is the price of the bonds? Round your answer to the nearest cent.

Answer 1

Price of Bonds is equal to the discounted value of all interest payments and redemption amount, discounted at yield to maturity

Since the interest is payable semi-annually, the YTM will be halved and Periods will be doubled

Semi-annual coupon payment = 1,000*5% = $50

Price of Bond = 50*PVAF(4.5%, 32 periods) + 1,000*PVF(4.5%, 32 periods)

= $50*16.789 + $1,000*0.244

= $1,083.45