Nesmith Corporation's outstanding bonds have a $1,000 par value, a 9% semiannual coupon, 15 years to maturity, and an 8% YTM. What is the bond's price? Round your answer to the nearest cent.
Price of Bond = Cupon Amount * Present Value of Annuity Factor (r,n) + Redemption Amount * Present Value of Interest Factor (r,n)
Where Cupon Amount = $1,000 * 9% * 1/2
= $45
Why did we multiply 1/2?
- Since compounding is Semi Annual
Redemption Amount = $1,000
r is the Yield to Maturity (YTM)
Yield for 6 months = 8/2
r = 4%
n is the remaining maturity
n = 15 * 2
n = 30
(Semi Annual Compounding)
Present Value of Annuity Factor (4% ,30) = 17.2920332979
Present Value of Interest Factor (4% ,30) = 0.30831866787
Therefore
Bond Price =$45* 17.2920332979 + $1,000 * 0.30831866787
Bond Price =$778.141498405 + $308.31866787
Bond Price = $1,086.46016627
Rounding to nearest cent
Bond Price = $1,086.46
Therefore the bond's price is $1,086.46.
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