Question

Vulcan, Inc., has 8.4 percent coupon bonds on the market that have 6 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 10.4 percent, what is the current bond price?

Answer 1

The current price of the bond is $913.91 as computed below

Step-by-step explanation:

In order to determine the current bond price,the pv formula in excel comes handy.

The pv formula is stated as below:

=pv(rate,nper,pmt,fv)

rate is the yield to maturity on the bond which is 10.40% in this case

nper is the period to maturity of the bond which is 6 years

pmt is the annual coupon payment payable by the bond which is denoted as coupon rate* face value of the bond i.e 8.40%*$1000=$84

fv is the face value of the bond which repayable at maturity

=-pv(10.40%,6,84,1000)

=$913.91