Question

eBook Problem Walk-Through Madsen Motors's bonds have 18 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 9.5%; and the yield to maturity is 10%. What is the bond's current market price?

Answer 1

Current Market 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
Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$1,000 x 9.50%]	PMT	95
Market Interest Rate or Yield to maturity on the Bond [10.00%]	1/Y	10
Maturity Period/Time to Maturity [18 Years]	N	18
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 (PV) = $958.99.

“Hence, the current market price of these bonds will be $958.99”