In: Finance
Renfro Rentals has issued bonds that have a 12% coupon rate, payable semiannually. The bonds mature in 14 years, have a face value of $1,000, and a yield to maturity of 9%. What is the price of the bonds? Round your answer to the nearest cent.
The price of the bond is theoretically equal to the present value of all future cash flows from it. Face value is received at maturity and coupons are received periodically.
=Price function of Excel can be used to calculate the price as under:
The settlement date is the date of buying the bond. Maturity date is the date of maturity of the bond. Here any date with a difference of 14 years can be used. Rate is the coupon rate of the bond in annual terms, yld is the discount rate in annual terms, redemption is the face value of the bond per $100 face value, frequency is the number of coupon payments in a year and basis is optional which denotes the type of day count basis to be used.
Thus, for $100 face value, the price is $123.614. In the question the face value is $1000. so the price will be $1236.14.
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