Question

Dufner Co. issued 15-year bonds one year ago at a coupon rate of 7.1 percent. The bonds make semi-annual payments. If the YTM on these bonds is 5.4 percent, what is the current dollar price assuming a par value of $1,000?

Answer 1

Total $1,173.2544

Step-by-step explanation:

The price of the bond will be equivalent to the coupon payment and maturity discounted at the YTM

Coupon payment PV will be an annuity:

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

C 35.50 (1,000 x 7.1% / 2 )

time 30 (15 years x 2 payment per year)

rate 0.027 (YTM /2 )

`35.5 * (1-(1+0.027)^(-30) )/(0.027) = PV\\`

PV $723.5919

The maturity will be the present value of a lump sum

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

Maturity 1,000.00

time 30.00

rate 0.027

`(1000)/((1 + 0.027)^(30) ) = PV`

PV 449.66

We add bot h to gett the market value

PV c $723.5919

PV m $449.6625

Total $1,173.2544