Vulcan, Inc., has bonds with a 7.2% coupon rate and 10 years left to maturity. The...

Vulcan, Inc., has bonds with a 7.2% coupon rate and 10 years left to maturity. The bonds make annual payments and have a face value (or "par value") of $1,000.

If the Yield to Maturity (YTM) on these bonds is 9.2 percent, what does the current bond price have to be?

What financial formula do we use for excel?

Solutions

Expert Solution

Par value = 1000

Annual couopn amount = par value*coupon rate

=1000*7.2% =72

years to maturity (n) =10

Yield to maturity (i) =9.2%

Current bond price is present value of all coupons received and face value received

Formula of PV used in excel for bond price = -PV(YTM, years to matuirty, Coupn amount, Face value)

=-PV(9.2%, 10, 72, 1000)

=$872.77

Manual formula:

Bond price formula = Coupon amount * (1 - (1/(1+i)^n)/i + face value/(1+i)^n

(72*(1-(1/(1+9.2%)^10))/9.2%) + (1000/(1+9.2%)^10)

=872.7690863

So current price of bond will be $872.77

(please thumbsup)

jeff jeffy answered 2 years ago

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