Question

Several years ago, castles in the sand inc. issued bonds at face value of $1,000 at a yield to maturity of 6.2%. now, with 6 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. what is the price of the bond now? (assume semiannual coupon payments.) (do not round intermediate calculations. round your answer to 2 decimal places.)

Answer 1

We have:

Face value FV = $1000

Coupon payment Pmt = 1000 x 6.20%/2 = 31

N = 6x2 = 12

R = 15%/2

We can use following formula to calculate the price of this bond:

PV = Pmt x PVIFA(N,R) + FV x PVIF(n, R)

= 31 x PVIFA(12,7.50%) + 1000 x PVIF(12,7.50%)

= 31 x 7.73528 + 1000 x 0.41985

= $659.64

Therefore, the price of this bond would be $649.64.