Nelsmann Co. Issued 12-year bonds a year ago at a coupon rate of 8 percent. The...

Question

Question

Nelsmann Co. Issued 12-year bonds a year ago at a coupon rate of 8 percent. The bonds make semiannual payments and have a par

Answer 1

Answer #1

Information provided:

Par value= future value= $1,000

Time= 12 years - 1= 11 years*2= 22 semi-annual periods

Coupon rate= 8%/2= 4%

Coupon payment= 0.04*1,000= $40

Yield to maturity= 11%/2= 5.50%

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 22

PMT= 40

I/Y= 5.50

Press the CPT key and PV to compute the present value.

The value obtained is 811.2525.

Therefore, the current price of the bond is $811.25.

Hence, the answer is option a.

Answer 2

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