Question

Billy Bob, Inc. bonds have 5-years to maturity, a 6.9% coupon rate, but pays semiannually, and a par value of $1,000. The going rate of interest (YTM or r _d) is 5.3%, based on semiannual compounding. What is the bond's current price? (Answer in $s to the nearest cent xxxx.xx with no commas or $-sign needed.)

Answer 1

The question is solved with the help of a financial calculator.

Future value= $1,000

Time= 5 years*2= 10 semi-annual periods

Coupon payment= 6.9%= 0.069/2= 0.0345*1,000= $34.50

Yield to maturity = 5.3%= 5.3%/2= 2.65%

The current price of the bond is calculated by entering the below information in a financial calcualtor:

FV= 1,000; N= 10; PMT= 34.50; I/Y= 2.65

Press CPT and PV to calculate the current price of the bond.

The current price of the bond is 1,069.48.