Question

Bond Valuation with Semi-Annual Payments: Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?

Answer 1

The current Price of the bond will be 1,006.20

Step-by-step explanation:

We have to calculate the present value of the bonds cash flows at a 8.5% rate

Present value ofthe interest service:

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

`100 * (1-(1+.085)^(-10) )/(0.085) = PV\\`

PV = $563.9183

Present Value of the principal

`(Principal)/((1 + rate)^(time) ) = PV`

`(1,000)/((1 + 0.85)^(10) ) = PV`

PV = $422.2854

Now we sum both concepts

422.2854 + 563.9183 = 1006.2037 = 1,006.20