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J&J Manufacturing issued a bond with a $1,000 par value. The bond has a coupon rate...

J&J Manufacturing issued a bond with a $1,000 par value. The bond has a coupon rate of 7% and makes payments semiannually. If the bond has 30 years remaining and the annual market interest rate is 9.4%, what will the bond sell for today?

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Answer #1

Selling price of the Bond

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.

The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

Here, the calculation of the Bond Price using financial calculator is as follows

Variables

Financial Calculator Keys

Figures

Par Value/Face Value of the Bond [$1,000]

FV

1,000

Coupon Amount [$1,000 x 7.00% x ½]

PMT

35

Market Interest Rate or Yield to maturity on the Bond [9.40% x ½]

1/Y

4.70

Maturity Period/Time to Maturity [30 Years x 2]

N

60

Bond Price

PV

?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $760.91.

“Hence, the selling price of the Bond will be $760.91”

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