Question

Langford Co. issued 14-year bonds a year ago at a coupon rate of 8.8%. The bonds make semiannual payments. If the YTM on these bonds is 7.1%, what is the current bond price? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Current bond price

Answer 1

Coupon Rate = 8.8% paid Semi annually

Semi Annual Coupon Rate = 8.8% /2 = 4.4%

Face Value of The Bond (F) = $ 1000 (assumed)

Coupon Amount (C) = F x Semin Annual Coupon Rate

Coupon Amount (C) = $ 1000 x 4.4% = $ 44

Now YTM of the Bond = 7.1%

Semi Annual YTM (r) = 7.1%/2 = 3.55 %

No. of years Left = 13 Years (As given that company issued 14 Year Bond a year ago)

Therefore No. of Coupon Payments (n) = 13 years x 2 = 26 Periods

Now Price of Bond = c x{1-(1+r)^-n/r} + F/(1+r)^n

Now Price of Bond = 44 x {1-(1+0.0355)^-26/0.0355} + 1000/(1.0355)^26

Now Price of Bond = $ 1142.77