Question

A company issues a​ ten-year bond at par with a coupon rate of 6.7​% paid​ semi-annually. The YTM at the beginning of the third year of the bond​ (8 years left to​ maturity) is 9.3​%. What is the new price of the​ bond?

A. $ 1,198

B. $ 856

C. $ 1,027

D. ​$1,000

Answer 1

New Price of the Bond

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value. The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

Here, the calculation of the Bond Price using financial calculator is as follows

Variables	Financial Calculator Keys	Figures
Face Value [-$1,000]	FV	-1,000
Coupon Amount [$1,000 x 6.70% x ½]	PMT	33.50
Market Interest Rate or Required Rate of Return [9.30% x ½]	1/Y	4.65
Time to Maturity [8 Years x 2]	N	16
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond = $856.

“Hence, the new price of the Bond will be $856”