Weismann Co. issued 11-year bonds a year ago at a coupon rate of 7 percent. The...

Weismann Co. issued 11-year bonds a year ago at a coupon rate of 7 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 12 percent, what is the current bond price?

Multiple Choice

$807.83
$739.55
$1,692.20
$713.25
$723.25

Solutions

Expert Solution

To find the price of this bond, we need to realize that the maturity of the bond is 10 years. The bond was issued 1 year ago, with 11 years to maturity, so there are 10 years left on the bond.

Semiannual interest = $1,000 * 0.07 * 6/12 = $35

The price of the bond is:

Current bond price = $35(PVIFA 6%,20) + $1,000(PVIF 6%,20)

Current bond price = ($35 * 11.4699212174) + ($1,000 * 0.31180472682)

Current bond price = $713.25

jeff jeffy answered 2 years ago

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