Question

Check My Work eBook 1 Problem Walk-Through Nesmith Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 8 years to maturity, and a 10% YTM. What is the bond's price? Round your answer to the nearest cent.

Answer 1

Par Value = $1,000

Annual Coupon Rate = 8.00%
Semiannual Coupon Rate = 4.00%
Semiannual Coupon = 4.00% * $1,000
Semiannual Coupon = $40

Time to Maturity = 8 years
Semiannual Period = 16

Annual YTM = 10.00%
Semiannual YTM = 5.00%

Bond Price = $40 * PVIFA(5.00%, 16) + $1,000 * PVIF(5.00%, 16)
Bond Price = $40 * (1 - (1/1.05)^16) / 0.05 + $1,000 * (1/1.05)^16
Bond Price = $40 * 10.837770 + $1,000 * 0.458112
Bond Price = $891.62

So, the price of the bond is $891.62