Question

Weismann Co. issued 15-year bonds a year ago at a coupon rate of 4.9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 4.5 percent, what is the current bond price

Answer 1

The price of the bond today is $1,042.96

Step-by-step explanation:

Face value (FV): $1000

Coupon rate: 4.9%

-> counpon received annually (PMT) = $1000 * 4.9% = $49

Tenor: 15 years

YTM: 4.5%

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

We can use excel to calculate Present Value of annual payment = PV(Rate,tenor,-PMT) = PV(4.5%,15,-49) = $526.24

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

= 1000/(1+4.5%)^15+ 49/(1+4.5%)^15 + 49/(1+4.5%)^14+.... +49/(1+4.5%)^1

= 1000/(1+4.5%)^15 + $526.24

= $1,042.96