Question

Nesmith Corporation's outstanding bonds have a $1,000 par value, an 12% semiannual coupon, 11 years to maturity, and an 11% YTM. What is the bond's price? Round your answer to the nearest cent.

Answer 1

Par value = $1000

yield to maturity = 11%

Semi-annual yield to maturity = yield to maturity/2 = 11%/2 = 5.5%

Bond maturity = 11 years = 22 semi-annual periods

Coupon rate = 12%

Semi-annual Coupon = par value *coupon rate/2 = 1000*12%/2 = $60

The bond price can be calculated using PV function in spreadsheet

PV(rate, number of periods, payment amount, future value, when-due)

Where, rate = semi-annual yield to maturity = 5.5%

number of periods = Bond maturity = 22 semi-annual periods

payment amount = Semi-annual Coupon = $60

future value = par value = $1000

when-due = when is the coupon paid each semi-annual period = end = 0

bond price = PV(5.5%, 22, 60, 1000, 0) = $1,062.92