Question

BOND VALUATION

Nesmith Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 11 years to maturity, and an 11% YTM. What is the bond's price? Round your answer to the nearest cent.

Bond Price=$______

Answer 1

Answer 2

To calculate the bond's price, we need to use the present value formula for a bond:

Bond Price = (C / 2) x [1 - 1 / (1 + r/2)^(n x 2)] + F / (1 + r/2)^(n x 2)

Where: C = coupon payment r = required rate of return (YTM) n = number of periods (in this case, semiannual periods) F = face value (par value)

Plugging in the given values, we get:

C = $1,000 x 8% / 2 = $40 (since it's a semiannual coupon)

r = 11% (given)

n = 11 years x 2 = 22 semiannual periods

F = $1,000 (given)

Bond Price = ($40 / 1.055)^1 + ($40 / 1.055)^2 + ... + ($40 / 1.055)^22 + ($1,000 / 1.055)^22 Bond Price = $806.52

Therefore, the bond's price is $806.52.