2 years ago, a company issued a 10-year, 9% coupon bond with a face value of...

2 years ago, a company issued a 10-year, 9% coupon bond with a face value of $1000. The bond makes quarterly coupon payments. Today, the bond yields APR of 10% compounded semi-annually. What is the price of the bond today?

I asked this question earlier but the answer I got is wrong. I am trying to figure out how to do this question correctly. Thank you!

Expert Solution

The Price of the Bond

· The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.

· The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

· Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figures

Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$1,000 x 9.00% x ¼]	PMT	22.50
Market Interest Rate or Yield to maturity on the Bond [10.00% x ¼]	1/Y	2.50
Maturity Period/Time to Maturity [(10 Years – 2 Years) x 4]	N	32
Bond Price/Current market price of the Bond	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $945.38.

Hence, the Price of the Bond will be $945.38.

jeff jeffy answered 1 year ago

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