Question

Grohl Co. issued 17-year bonds a year ago at a coupon rate of 10 percent. The bonds make semiannual payments. If the YTM on these bonds is 11 percent, what is the current bond price?

Answer 1

To find the price of this bond, we need to realize that the maturity of the bond is 16 years. The bond was issued 1 year ago, with 17 years to maturity, so there are 16 years left on the bond. Also, the coupons are semiannual, so we need to use the semiannual interest rate and the number of semiannual periods. The price of the bond is:

Current bond price = $50(PVIFA 5.5%,32) + $1,000(PVIF 5.5%,32)

Current bond price = ($50 * 14.9041981701) + ($1,000 * 0.18026910041)

Current bond price = $925.48