Question

Nesmith Corporation's outstanding bonds have a $1,000 par value, a 12% semiannual coupon, 14 years to maturity, and a 7.5% YTM. What is the bond's price? Round your answer to the nearest cent.

Answer 1

Information provided:

Par value= future value= $1,000

Time= 14 years*2= 28 semi-annual periods

Coupon rate= 12%/2= 6%

Coupon payment= 0.06*1,000= $60 per semi-annual period

Yield to maturity= 7.5%/2= 3.75% per semi-annual period

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 60

I/Y= 3.75

N= 28

Press the CPT key and PV to compute the present value.

The value obtained is 1,385.97.   

Therefore, the price of the bond is $1,385.97.