Question

Rokhanna, Inc. issued $1,000 par value bonds with an 8% coupon. The bonds have 18 years to maturity. Market interest rates are 5.4%. What is the current price of the bond?

Answer 1

Bond Price = $1294.65063 rounded off to $1294.65

Step-by-step explanation:

To calculate the price of the bond today, we will use the formula for the price of the bond. Assuming the bond is an annual bond, the coupon payment, number of periods and annual YTM will be,

Coupon Payment (C) = 1000 * 0.08 = 80

Total periods (n) = 18

r or YTM = 0.054 or 5.4%

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

Bond Price = 80 * [( 1 - (1+0.054)^-18) / 0.054] + 1000 / (1+0.054)^18

Bond Price = $1294.65063 rounded off to $1294.65