ABC Inc. recently issued $1,000 par bonds at a 18.96% coupon rate. If the bonds have...

ABC Inc. recently issued $1,000 par bonds at a 18.96% coupon rate. If the bonds have 19 years to maturity and a YTM of 18.16%, what is the current price of the bond? Assume semi-annual compounding.

Expert Solution

Given that;
Par value is $1000
Coupon rate is 18.96%
For semiannual compounding, the semi annual coupon rate is 18.96% divided by 2 that is equal to 0.09480
Semiannual coupon payment is=(Par value)*(Semiannual coupon rate)=1000*0.09480=94.80
Time period is 19 years, for semiannual compounding, the number of periods is 19 multiplied by 2 that is equal to 38
YTM is 18.16%, so the semiannual YTM is 0.0908
Now, we can determine the present value of the bond using excel as:

Answer: Hence, the current price of the bond is $1,042.43

jeff jeffy answered 2 years ago

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