Canal Inc. has an 1,000 par value bond with 15 years to maturity and a coupon...
Canal Inc. has an 1,000 par value bond with 15 years to maturity and a coupon rate of 14%, paid semiannually. The market rate on similar debt has now risen to 16%. What is the current price of this bond?
Homework Answers
Rate = 16%/ 2 = 8%
Number of periods = 15 * 2 = 30
Coupon = ( 1,000 * 0.14) / 2 = 70
Current price = Coupon * [ 1 - 1 / ( 1 + r)n] / r + FV / ( 1 + r)n
Current price = 70 * [ 1 - 1 / ( 1 + 0.08)30] / 0.08 + 1000 / ( 1 + 0.08)30
Current price = 70 * 11.257783 + 99.37733
Current price = $887.42
Keys to use in a financial calculator:
FV 1000
N 30
PMT 70
I/Y 16
CPT PV
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