Question

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.

Answer #1

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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