Question

Nungesser Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 16 years to maturity, and an 7% YTM. What is the bond's price? Round your answer to the nearest cent.

Answer 1

Answer - Bond price = $1095

Reason -

Bond price = present value of coupons + present value of face value

Present value of coupons = coupon * present value annuity factor, 3.5%, 32 periods

( 3.5% is taken because coupons are paid semi annually so semi annual discounting is to be done and 32 periods because in 16 years 32 coupon payments will be received)

Semi annual coupons = $1000 * 4% = $40

Present value of bond = $40 * PVAF, 3.5%, 32 periods

Present value of coupons = $40 * 19.0688654657

Present value of coupons = $762.754618628

Present value of face value = face value * present value discounting factor, 3.5%, 32nd period

Present value of face value = $1000 * PVDF, 3.5%, 32nd year

Present value of face value = $1000 * 0.3325897085

Present value of face value = $332.5897085

So,

Bond Price = $762.754618628 + $332.5897085

= $1095.34432712 or $1095 ( rounded off to nearest cent )