Question

wesimann co. issed 11-year bonds a year ago at a coupon rate of 7.1% The bonds make semiannual payments and have a par value of 1,000. if the ytm on these bonds is 5.4%, what is the current bond price

Answer 1

$1,130.04

Step-by-step explanation:

The computation of the current bond price is shown below:

But before that following calculations need to be done

Number of periods = 11 - 1 = 10 × 2 = 20

Rate = 5.4% ÷ 2 = 2.7%

Coupon = (7.1% of 1000) ÷ 2 = $35.5

Now

The Current bond price is

= Coupon × [1 - 1 ÷ (1 + r)^n] ÷ r + FV ÷ (1 + r)^n

= $35.5 × [1 - 1 ÷ (1 + 0.027)^20] ÷ 0.027 + $1,000 ÷ (1 + 0.027)^20

= $35.5 × [1 - 0.586937] ÷ 0.027 + $586.936514

= $35.5 × 15.29863 + $586.936514

= $1,130.04