Weismann Co. issued 8-year bonds a year ago at a coupon rate of
8 percent. The bonds make semiannual payments and have a par value
of $1,000. If the YTM on these bonds is 10 percent, what is the
current bond price? |
$1,498.93
$772.13
$911.01
$940.37
$901.01
Correct Option is $901.01
Reason :
Calculation of Current Bond Price
Current Bond Price can be calculated using PV function of excel
=PV(rate,nper,pmt,fv)
where
rate is the yield to maturity i.e 10% / 2 = 5% (Divided by 2 as semi annual coupon payments are made)
nper is the years to maturity i.e 7 * 2 = 14 (Multiplied by 2 as semi annual coupon payments are made)
Note : Given that the 8-year bonds are issued a year ago therefore 7 years (8 - 1) are left to maturity
pmt is the coupon payment i.e 1000 * 8% = 80 / 2 = 40 (Divided by 2 as semi annual coupon payments are made)
fv is the facev value i.e 1000
=PV(5%,14,-40,-1000)
Solving Current Bond Price is $901.01
Get Answers For Free
Most questions answered within 1 hours.