Answer:
The current bond price is $1,193.67
Explanation:
SOLVING FOR PV
nper: 38 (B/c it was issued a year ago, multiply 19 by 2)
rate = 8/2 = Â 4% (semi-annual payment)
PMT: -1000*10%/2
= -100 / 2 Â = -50
FV: -1,000
Finding out PV using the PMT formula in excel,
PV = (rate, nper, pmt, fv)
solve in excel
PV = $1,193.67
(excel file is attached for the formula input)
Answer:
The bond price is $1193.68
Explanation:
The bonds were issued a year ago so the years remaining to maturity is 19 years and payments are made semi annually so
n = 19 * 2 = 38
Coupon payments 10 % Â annually then semi annually is 5%
C = 5% *1000 = $50
FV = $1000
Yield to to maturity is 8% annually then 4% semiannually
Price of bond formula
P = {C Ă— 1-(1+r)^-n/r} + (fv/(1+r)^n)
 ={50×1-(1+0.04)^-38/0.04)+ (1000/(1+0.04)^38)
 =968.39 + 225.29
=$1193.68
