Nesmith Corporation's outstanding bonds have a $1,000 par value, a 10% semiannual coupon, 14 years to maturity, and an 8% YTM. What is the bond's price? Round your answer to the nearest cent.
price of the bond = [present value of annuity* interest payment] + [present value factor * face value]
here,
present value of annuity =[1+(1+r)^(-n)] / r
here,
r = 8% per annum => 4% for semi annual period =>0.04.
n = 14 years * 2 semi annual
=>28 periods
=>[1-(1.04)^(-28)]/0.04
=>16.6630625.
interest payment = $1000*10%*6/12=>$50.
present value factor = 1/(1+r)^n
=>1/(1.04)^28
=>0.33347747.
face value =$1000
value of bond =[16.6630625*$50]+[0.33347747*$1000]
=>831.153125 + 333.47747
=>$1,166.63
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