Question

Nesmith Corporation's outstanding bonds have a $1,000 par value, a 9% semiannual coupon, 18 years to maturity, and a 12% YTM. What is the bond's price? Round your answer to the nearest cent.

Answer 1

Answer :

This question needs to be solved using financial calculator (like Texas BA II plus)

In calculator:

Put 1000 and press FV : This is the amount we receive in future at maturity

Put 45 and press PMT : This is coupon amount we receive semi annually. ($1000*4.5%)

Put 6 and press I/Y : This is YTM or Discount rate for semiannual period (12% / 2)

Put 36 and press N : This is number of semiannual periods (18*2)

Now press CPT and then PV

Answer comes to -780.69

Therefore $780.69 is the Bond's Price Today.

Therefore annual rate of interest is 7%