Question

Wesimann Co. issued 15-year bonds a year ago at a coupon rate of 7.5 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 5.8 percent, what is the current bond price?

Answer 1

$1,161.46

Step-by-step explanation:

In order to determine the current bond price we can use an excel spreadsheet and the present value formula: =PV(Rate,Nper,PMT,FV)

where:

• Nper = 14 x 2 = 28 (15 year bond issued 1 year ago = 14 years)
• Rate = 5.8% / 2 = 2.9% (semiannual payments)
• PMT = ($1,000 x 7.5%) / 2 = $37.50
• FV = $1,000 (face value of bonds)
• PV = ?

Current price =PV(Rate,Nper,PMT,FV) =PV(2.9%,28,37.50,1000) = $1,161.46