Question

Lennox industries' current AAA bonds pay a 6 and 3/4 percent coupon rate. These bonds mature in 126 months. The bond pays semiannual interest. What is the market price today at a Par value of $1,000 and the YTM is 7.2%

Answer 1

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate or yield / frequency of coupon in a year = 7.2/2 =	3.600000
PMT = Coupon rate x FV / frequency = 6.75%/2 x -1000	-$33.75
N = Number of years remaining x frequency = 126 =	126.00
FV = Future Value =	-$1,000.00
CPT > PV = Present value of bond =	$938.23

Market price today = $938.23

F = Face value =	$1,000.00
C = Coupon rate =	6.75%
R = Yield = YTM =	7.20%
N = Number of coupon payments till maturity =	126
Formula for bond value = (C x F x ((1-((1+R)^-N)) / R) + (F/(1+R)^N)
Bond Value = ((6.75%/2)*1000*((1-((1+(7.2%/2))^-126))/(7.2%/2))+(1000/(1+(7.2%/2))^126))
Bond value =	938.23