Question

Great Wall Pizzeria issued 14-year bonds one year ago at a coupon rate of 5.6 percent. If the YTM on these bonds is 8.4 percent, what is the current bond price? Note: Corporate bonds pay coupons twice a year

Answer 1

Current Price of Bond

$ 781.04

Working:

Price of bond is the present value of cash flow.
Remaining life of bond is 13 years.
	Par Value					$       1,000
	Semi annual coupon		$    1,000	x	5.6% x 6/12	$       28.00
	Present value of annuity of 1			=	(1-(1+i)^-n)/i		Where,
				=	(1-(1+0.042)^-26)/0.042		i	8.4%/2	=	0.042
				=	15.6401		n	13*2	=	26
	Present Value of 1			=	(1+i)^-n
				=	(1+0.042)^-26
				=	0.3431
	Present Value of coupon interest				$        28.00	x	15.6401	=	$ 437.92
	Present Value of Par Value				$        1,000	x	0.3431	=	$ 343.11
	Current Price of Bond								$ 781.04