Question

Problem 5-07 Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have a 6% coupon rate, payable semiannually. The bonds mature in 12 years, have a face value of $1,000, and a yield to maturity of 10%. What is the price of the bonds? Round your answer to the nearest cent.

Answer 1

Bond's Market Value = PV of Coupon Payment + PV of Maturity Value

= [Periodic Coupon Payment * {(1 - (1 + r)^-n) / r}] + [Face Value / (1 + r)^n]

= [{(6%/2)*$1,000} * {(1 - (1 + 0.10/2)^-(12*2)) / (0.10/2)}] + [$1,000 / {1 + (0.10/2)}^(12*2)]

= [$30 * {0.6899 / 0.05}] + [$1,000 / 3.2251]

= [$30 * 13.7986] + $310.07

= $413.96 + $310.07 = $724.03