Question

Whatcom Co. issued a 19-year bond a year ago at a coupon rate of 6 percent. The bond makes semiannual coupon payments. If the YTM on these bonds is 8 percent now, what is the current bond price? (Note: when bond face value is not given, assume the common choice of $1,000 for face value.)

Answer 1

Semi Annual Coupon = Face Value*Coupon Rate/2 = 1000*6%/2 = $30

Semi Annual Yield Rate = 8%/2 = 4%

Coupons Remaining = (19-1)*2 = 36

Period	Cash Flow	Discounting Factor [1/(1.04^year)]	PV of Cash Flows (cash flows*discounting factor)
1	30	0.961538462	28.84615385
2	30	0.924556213	27.73668639
3	30	0.888996359	26.66989076
4	30	0.854804191	25.64412573
5	30	0.821927107	24.6578132
6	30	0.790314526	23.70943577
7	30	0.759917813	22.7975344
8	30	0.730690205	21.92070615
9	30	0.702586736	21.07760207
10	30	0.675564169	20.26692506
11	30	0.649580932	19.48742795
12	30	0.62459705	18.73791149
13	30	0.600574086	18.01722258
14	30	0.577475083	17.32425248
15	30	0.555264503	16.65793508
16	30	0.533908176	16.01724527
17	30	0.513373246	15.40119738
18	30	0.493628121	14.80884363
19	30	0.474642424	14.23927272
20	30	0.456386946	13.69160839
21	30	0.438833602	13.16500806
22	30	0.421955387	12.6586616
23	30	0.405726333	12.17179
24	30	0.390121474	11.70364423
25	30	0.375116802	11.25350407
26	30	0.360689233	10.82067699
27	30	0.34681657	10.4044971
28	30	0.333477471	10.00432414
29	30	0.320651415	9.619542441
30	30	0.308318668	9.249560039
31	30	0.296460258	8.89380773
32	30	0.28505794	8.551738202
33	30	0.274094173	8.222825194
34	30	0.26355209	7.906562687
35	30	0.253415471	7.602464122
36	30	0.243668722	7.310061656
36	1000	0.243668722	243.6687219
		Price of the Bond = Sum of PVs	810.9171805 = $810.92