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General Mills has a $1,000 par value, 10-year to maturity bond outstanding with an annual coupon...

General Mills has a $1,000 par value, 10-year to maturity bond outstanding with an annual coupon rate of 7.89 percent per year, paid semiannually. Market interest rates on similar bonds are 11.30 percent. Calculate the bond’s price today.

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Answer #1

Face Value = $1,000

Annual Coupon Rate = 7.89%
Semiannual Coupon Rate = 3.945%
Semiannual Coupon = 3.945% * $1,000 = $39.45

Time to Maturity = 10 years
Semiannual Period to Maturity = 20

Annual Interest Rate = 11.30%
Semiannual Interest Rate = 5.65%

Current Price = $39.45 * PVIFA(5.65%, 20) + $1,000 * PVIF(5.65%, 20)
Current Price = $39.45 * (1 - (1/1.0565)^20) / 0.0565 + $1,000 / 1.0565^20
Current Price = $39.45 * 11.80306 + $1,000 * 0.3331
Current Price = $798.73

So, current market price is $798.73

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