Question

Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 8.25%, based on semiannual compounding. What is the bond's price?

Answer 1

Information provided:

Par value= future value= $1,000

Time= 10 years*2= 20 semi-annual period

Coupon rate= 6.25%/2= 3.1250%

Coupon payment= 0.03125*1,000= $31.25

Interest rate= 8.25%/2= 4.1250%

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

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 31.25

N= 20

I/Y= 4.1250

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

The value obtained is 865.59.

Therefore, the bond’s price is $865.59.

In case of any query, kindly comment on the solution.