Question

worldwide enterprises has outstanding bonds with a face value of 1000 expiring in 17years at a coupon rate of 9.8 percent. The bonds make semiannual payments. The yield to maturity on the bonds is 9.2 percent. What is the current bond price? 1098 1051.08 951.27 1042.16 1089.02

Answer 1

b.1051.08

present value of bonds = [present value of annuity factor * coupon payment] + [present value factor * face value]

here,

present value of annuity factor = [1 -(1+r)^(-n)] /r

here,

r = 9.2 % per annum =>4.6% =>0.046

n = 17 years * 2 semi annual periods

=>34 periods.

present value of annuity factor =[1-(1.046)^(-34)]/0.046

=>[0.7832682]/0.046

=>17.0275696

coupon payment = $1,000*9.8%*6/12 =>$49.

present value factor = 1 /(1+r)^n

=>1 /(1.046)^34

=>0.21673184

face value =$1,000

now,

current value of bond = [17.0275696*$49] + [0.21673184*1,000]

=>$1,051.08.