Question

Aloha Inc. has 4.1 percent coupon bonds on the market that have 9 years left to maturity. If the YTM on these bonds is 7.5 percent, what is the current bond price? The bond pays coupons twice a year.

(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Face Value = $1,000

Annual Coupon Rate = 4.10%
Semiannual Coupon Rate = 2.05%
Semiannual Coupon = 2.05% * $1,000
Semiannual Coupon = $20.50

Time to Maturity = 9 years
Semiannual Period = 18

Annual YTM = 7.50%
Semiannual YTM = 3.75%

Current Price = $20.50 * PVIFA(3.75%, 18) + $1,000 * PVIF(3.75%, 18)
Current Price = $20.50 * (1 - (1/1.0375)^18) / 0.0375 + $1,000 * (1/1.0375)^18
Current Price = $20.50 * 12.92046 + $1,000 * 0.51548
Current Price = $780.35

So, the current price of bond is $780.35