Question

Vulcan, Inc., has 8.7 percent coupon bonds on the market that have 10 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 10.7 percent, what is the current bond price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

$880.72

Step-by-step explanation:

Bond price will be calculated by following formula

Bond Price = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F x ( 1 + r )^-n ]

Bond Price = $87 x [ ( 1 - ( 1 + 0.107 )^-10 ) / 0.107 ] + [ $1,000 x ( 1 + 0.107 )^-10 ]

Bond Price = $87 x [ ( 1 - ( 1.107 )^-10 ) / 0.107 ] + [ $1,000 x ( 1.107 )^-10 ]

Bond Price = $87 x [ ( 1 - ( 1.107 )^-10 ) / 0.107 ] + [ $1,000 x ( 1.107 )^-10 ]

Bond Price = $518.87 + $361.85

Bond Price = $880.72