Question
In: Accounting
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 12% semiannual coupon, 17 years to...
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 12% semiannual coupon, 17 years to maturity, and an 9% YTM. What is the bond's price? Round your answer to the nearest cent.
Solutions
Expert Solution
| Price of bond is the present value of cash flows from bond. | |||||||||
| Present value of coupon interest | $ 1,034.81 | ||||||||
| Present value of Par Value | $ 223.90 | ||||||||
| Present value of cash flows from bond | $ 1,258.70 | ||||||||
| Thus, | |||||||||
| Current Price of bond | $ 1,258.70 | ||||||||
| Working: | |||||||||
| # 1 | |||||||||
| Semi annual coupon interest | = | Par Value x Semi annual coupon rate | |||||||
| = | $ 1,000 | x | 6.0% | ||||||
| = | $ 60 | ||||||||
| # 2 | |||||||||
| Present value of annuity of 1 | = | (1-(1+i)^-n)/i | Where, | ||||||
| = | (1-(1+0.045)^-34)/0.045 | i | 4.50% | ||||||
| = | 17.2468 | n | 34 | ||||||
| # 3 | |||||||||
| Present value of 1 | = | (1+i)^-n | |||||||
| = | (1+0.045)^-34 | ||||||||
| = | 0.2239 | ||||||||
| # 4 | |||||||||
| Present value of coupon interest | $ 60 | x | 17.24676 | = | $ 1,034.81 | ||||
| Present Value of Par Value | $ 1,000 | x | 0.22390 | = | $ 223.90 | ||||
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