Question

Altro Sheet Metals has a bond issue outstanding with 15 years to maturity, a coupon rate of 8.5% (paid semiannually), and a par value of $1,000. The bonds are currently priced to yield 9.9% per year. What is the market price of each bond?

Answer 1

Information provided:

Par value= future value= $1,000

Time= 15 years*2= 30 semi-annual periods

Coupon rate= 8.5%/2= 4.25%

Coupon payment= 0.0425*1,000= $42.50 per semi-annual period

Yield to maturity= 9.9%/2= 4.95% per semi-annual period

The market 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= 42.50

I/Y= 4.95

N= 30

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

The value obtained is 891.78.

Therefore, the market price of the bond is $891.78.

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