Question

Staind, Inc., has 7 percent coupon bonds on the market that have 9 years left to maturity. The bond's make semiannual payments. If the YTM on these bonds is 5 percent, what is the current bond price

Answer 1

Bond Price = $1143.533636 rounded off to $1143.53

Step-by-step explanation:

To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,

Assume that the face value or par value of the bond is $1000.

Coupon Payment (C) = 1000 * 0.07 * 6/12 = $35

Total periods (n) = 9 * 2 = 18

r or YTM = 0.05 * 6/12 = 0.025 or 2.5%

The formula to calculate the price of the bonds today is attached.

Bond Price = 35 * [( 1 - (1+0.025)^-18) / 0.06] + 1000 / (1+0.025)^18

Bond Price = $1143.533636 rounded off to $1143.53