Eagle Enterprises issued 10 year bonds in March 2014 with a face value of $1,000, paying...

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Eagle Enterprises issued 10 year bonds in March 2014 with a face value of $1,000, paying...

Eagle Enterprises issued 10 year bonds in March 2014 with a face value of $1,000, paying semi-annual coupons with a coupon rate of 6%, and a yield to maturity of 4%. It is now March 2017, what is the current price of the bond?

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Answer 1

Answer #1

Face value of bond = $ 1,000
Annual Coupon rate 6%, semi-annual coupon rate 3%
Semi-annual coupon = $ 1,000 x 3% = $ 30
Annual yield 4% , semi-annual yield 2%
Duration of bond 10 years , 20 semi-annual periods
Issue date of bond - March 2014
Current Date - March 2017
Remaining periods to maturity = 14 semi-annual periods

Present Value on March 2017 of coupns at $ 30 each for 14 periods at 2% yield;
( $ 30 x 12.1062)	363.19
Present Value of Maturity of Bond $ 1,000 at the end of 14th period from March 2017 at 2% semi-annual yield ( $ 1,000 x 0.7579)	757.90
current price of the bond on March 2017	1,121.09

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Answer 2

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