Question

Harrison co. issued 17-year bonds one year ago at a coupon rate of 6.8 percent. the bonds make semiannual payments. if the ytm on these bonds is 5.4 percent, what is the current dollar price assuming a $1,000 par value? (do not round intermediate calculations and round your answer to 2 decimal places,

e.g., 32.16.) current bond price $ 1,148.73 correct

Answer 1

Answer: The current market price of the bond is $1148.73.

We have:  

Face Value (FV)  1000

Coupon rate  6.80%

YTM  5.40%

No. of years  16

Compounding  Semi-Annual

We take 16 as the number of years since the bonds were issued a year ago.

We calculate ytm per period, coupon rate, number of periods as follows:

Coupon interest per period (C)  $34 = \frac{1000*0.068}{2}$

YTM per period (r)                       $2.70% = \frac{0.054}{2} *100$  

Number of periods (n)        $32 =16*2$

The bond's current market price is calculated as :

$\mathbf{CMP_{bond} = C*\left ( \frac{1-(1+r)^{n}}{r} \right )}+\frac{FV}{(1+r)^n}$

Substituting the values we get,

CMP_{bond} = 34*\left ( \frac{1-(1.027)^{32}}{0.027}\right )}+\frac{1000}{(1.027)^32}[/tex]

CMP_{bond} = 34*21.247040283  +\frac{1000}{2.345601308 }[/tex]

$CMP_{bond} = 722.3993696+426.3299124$

mathbf{CMP_{bond} = 1,148.73}