Stacker's Corporation's bonds have a 10-year maturity, a 5.00% semiannual coupon, and a par value of...

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Question

Answer 1

Answer #1

Price of a bond is the present value of its cash flows. The cash flows are the coupon payments and the face value receivable on maturity

Price of bond is calculated using PV function in Excel :

rate = 2%/2 (Semiannual YTM of bonds = annual YTM / 2)

nper = 10 * 2 (10 years remaining until maturity with 2 semiannual coupon payments each year)

pmt = 1000 * 5% / 2 (semiannual coupon payment = face value * coupon rate / 2)

fv = 1000 (face value receivable on maturity)

PV is calculated to be $1,270.68

Answer 2

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