Question

Wesimann Co. issued 10-year bonds a year ago at a coupon rate of 8.2 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.5 percent, what is the current bond price?

Answer 1

Current Bond Price = $1,114.46

Step-by-step explanation:

Coupon rate = 8.2/ 2

= 4.1 %

YTM = 6.5 / 2

= 3.25%

Bond is issued one year ago,

Periods = (10 - 1) *2

= 18

Interest = $1,000 * 4.1%

= $41

Current Bond price = Present value of Bond

Present value of bond = $41 * PVIFA(3.25%, 18) + $1,000 * PVIF(3.25%, 18)

= $41 * 13.4673 + $1,000 * 0.5623

= $552.16 + $562.30

= $1,114.46

Current Bond Price = $1,114.46