Question

Harrison Co. issued 14-year bonds one year ago at a coupon rate of 6.9 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.5 percent, what is the current dollar price assuming a $1,000 par value?

Answer 1

Bond Price​= $1,128.82

Step-by-step explanation:

Giving the following information:

Time= 13*2= 26

Cupon= (0.069/2)*1,000= 34.5

YTM= 0.055/2= 0.0275

Par value= $1,000

To calculate the price of the bond, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 34.5*{[1 - (1.0275^-26)] / 0.0275} + [1,000/(1.0275^26)]

Bond Price​= 634.88 + 493.94

Bond Price​= $1,128.82