Co issued 9year bonds a year ago at a coupon rate of 7 perce

Co. issued 9-year bonds a year ago at a coupon rate of 7 percent. The bonds make semiannual payments. If the YTM on these bonds is 8 percent, what is the current bond price?

Solution

Using financial calculator BA II Plus - Input details:

#

I/Y = R = Rate or yield / frequency of coupon in a year =

4.00

PMT = Payment = Coupon / frequency of coupon =

-$35.00

N = Total number of periods = Years x frequency of coupon =

18

FV = Future Value =

-$1,000.00

CPT > PV = Bond Value =

$936.70

Or

Formula for bond value = (PMT x ((1-((1+R)^-N)) / R) + (FV/(1+R)^N)

Bond Value = (35 x ((1-((1+4%)^-18)) / 4%) + (1000/(1+4%)^18) = $936.70