Question

3.   Bernstein Co. issued 20-year bonds 4 years ago at a coupon rate of 2.75 percent. The      bonds make semiannual payments and have a par value of $1,000. If the YTM on    these bonds is 2.5 percent, what is the current bond price?

Answer 1

Q-3)

Face Value of bond = $1000

Semi-Annual Coupon Bond = $1000*2.75%*1/2

= $13.75

No of coupon paymnets from now(n) = No of years to maturity from today*2

= 16 years*2

= 32

YTM = 2.5%

Semi-annual YTM = 2.5%/2

= 1.25%

Calculating the purchase price of Bond:-

Price = $360.818 + $671.98

Price = $1032.80

So, the current bond price is $1032.80

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