Question

Langford Co. issued 14-year bonds a year ago at a coupon rate of 7.8%. The bonds make semiannual payments. If the YTM on these bonds is 6.1%, what is the current bond price? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Current bond price $

Answer 1

Sol:

Face value (FV) = $1,000

Coupon rate = 7.8%,, Semiannual coupon rate = 7.8 / 2 = 3.9%

Semiannual Coupon payment (PMT) = 1000 x 3.9% = $39

Years to maturity (NPER) = 14 - 1 = 13 years, Semiannual = 13 x 2 = 26

Interest rate = 6.1%, Semiannual = 6.1 / 2 = 3.05%

To determine current bond price (PV) we can use PV function in excel:

FV	1,000
PMT	39
NPER	26
Rate	3.05%
PV	1,151.08

Therefore current bond price (PV) will be 1,151.08.

Working