Question

Renfro Rentals has issued bonds that have a 6% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 5.5%. What is the price of the bonds? Round your answer to the nearest cent.

Answer 1

Given,

Face value = $ 1000

Coupon rate = 6% ( Payable Semiannually)

Coupon Amount = $ 1000*6%/2 = $ 30

YTM = 5.5% ( OR) 5.5%/2 = 2.75% for 6 months

We know that at YTM , the Present value of the future cash inflows is nothing but a price of a bond

So the Price of the bond is

S.No	Cash flow	Disc @ 2.75%	Discounted Cash flow
1	$30	0.9732	$29.20
2	$30	0.9472	$28.42
3	$30	0.9218	$27.66
4	$30	0.8972	$26.91
5	$30	0.8732	$26.19
6	$30	0.8498	$25.49
7	$30	0.8270	$24.81
8	$30	0.8049	$24.15
9	$30	0.7834	$23.50
10	$30	0.7624	$22.87
11	$30	0.7420	$22.26
12	$30	0.7221	$21.66
13	$30	0.7028	$21.08
14	$30	0.6840	$20.52
15	$30	0.6657	$19.97
16	$1,030	0.6479	$667.31
		Total	$1,032.01

Hence the Price of the bond is $ 1032.01

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