Question

Bond valuation

Nesmith Corporation's outstanding bonds have a $1,000 par value, a 7% semiannual coupon, 20 years to maturity, and an 8.5% YTM. What is the bond's price? Round your answer to the nearest cent.

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Answer 1

Information provided:

Par value= future value= $1,000

Time= 20 years*2= 40 semi-annual periods

Coupon rate= 7%/2= 3.5%

Coupon payment= 0.035*1,000= $35

Yield to maturity= 8.5%/2= 4.25%

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

The present value of the bond is computing by entering the below in a financial calculator:

FV= 1,000

N= 40

PMT= 35

I/Y= 4.25

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

The value obtained is 856.92.

Therefore, the price of the bond 5 years from now is $856.92.

In case of any further queries, kindly comment on the solution.