Question

Sqeekers Co. issued 11-year bonds a year ago at a coupon rate of 8.3 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.6 percent, what is the current bond price?

Answer 1

The price of the bond today is $1,131.48

Step-by-step explanation:

Face value (FV): $1,000

Coupon rate: 8.3%

-> counpon received semi- annually (PMT) = $1000 * 8.3%/2 = $41.5

Tenor: 11 years -> number of payment (NPer) = 11*2 = 22

YTM: 6.6% -> semi-annual rate = 6.6%/2 = 3.3%

Present value = Future Value/ (1+ YTM)^tenor

We can use excel to calculate Present Value of annual payment

= PV(Rate,NPer,-PMT) = PV(3.3%,22,-41.5) = $641.94

The price of bond today = present value of face value + present value of coupon received annually

= 1000/(1+3.3%)^22+ 41.5/(1+3.3%)^22 + 41.5/(1+3.3%)^21+....+ 41.5/(1+3.3%)^1

= 1000/(1+3.3%)^22 + 641.94

= 1,131.48