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.

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

ekkarill92 answered 2 years ago

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