Question

Toys Co. issued 10-year bonds a year ago at a coupon rate of 10%. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 9%, what is the current bond price?

Answer 1

	Current Bond Price =Present value of future cash flows
	Present Value (PV) of Cash Flow:
	(Cash Flow)/((1+i)^N)
	i=Discount Rate=Semi annual YTM=(9/2)%=4.5%=0.045
	N=Semi annual period of cash flow
	Semi annual coupon payment	$50	(1000*10%)/2
	Payment at maturity end of year10	$1,000
	N	A	B=A/(1.045^N)
	Semi annual period	Cash Flow	Present Value
	1	$50	$48
	2	$50	$46
	3	$50	$44
	4	$50	$42
	5	$50	$40
	6	$50	$38
	7	$50	$37
	8	$50	$35
	9	$50	$34
	10	$50	$32
	11	$50	$31
	12	$50	$29
	13	$50	$28
	14	$50	$27
	15	$50	$26
	16	$50	$25
	17	$50	$24
	18	$50	$23
	19	$50	$22
(1000+50)	20	$1,050	$435
		Total	$1,065
	Current Bond Price	$1,065