Question

Weismann Co. issued 13-year bonds a year ago at a coupon rate of 10 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 8 percent, what is the current bond price?

Answer 1

Information provided:

Par value= future value= $1,000

Time= 13 years*2= 26 semi-annual periods

Coupon rat= 10%/2= 5%

Coupon payment= 0.05*1,000= $50

Yield to maturity= 8%/100= 4% per semi-annual period

The current bond price is calculated by computing the present value of the bond.

Enter the beloew in a financial calculator:

FV= 1,000

N= 26

PMT= 50

I/Y= 4

Press the CPT key and PV to calculate the present value of the bond.

The value obtained is $1,159.83.

Therefore, the current bond price is $1,159.83.

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