Question

Nesmith Corporation's outstanding bonds have a $1,000 par value, a 6% semiannual coupon, 15 years to maturity, and a 10% YTM. What is the bond's price? Round your answer to the nearest cent.

$  

Answer 1

Given that;
Par value=$1000
Coupon rate 6%, as the coupon payment is made semiannually, the semiannual coupon rate is 6%/2=3%
Semiannual coupon payment=(Face value)*(Semiannual coupon rate)=1000*3%=30

Yield to maturity is 10%, so the semiannual rate =10%/2=5%
Time period is 15 years, as the coupon payment is made semiannually, the number of periods=15*2=30

We can determine the bond's price using excel as:

Answer: Hence, the bond's price is $692.55