Question

# Weismann Co. issued 8-year bonds a year ago at a coupon rate of 8 percent. The...

 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

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