BOND VALUATION Nesmith Corporations outstanding bonds have a

BOND VALUATION

Nesmith Corporation\'s outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 15 years to maturity, and an 9.5% YTM. What is the bond\'s price? Round your answer to the nearest cent.

$

Solution

Price of the Bond = $881.35

Par Value of the bond = $1,000

Coupon Amount = $40 [ ($1,000 x 8%) x ½ ]

Yield to Maturity            = 4.75% [9.50% x ½]

Maturity Period              = 15 Years x 2 = 30 Years

Price of the Bond = Present Value of the Coupon Payments + Present Value of the Par Value

= $40 [PVIFA 4.75%, 30 Years] + $1,000[PVIF 4.75%, 30 Years]

= [$40 x 15.820418] + [$1,000 x 0.2485301]

= $632.82 + $248.53

= $881.35