Your company issued a 10 percent coupon rate bond with the f

Your company issued a 10 percent coupon rate bond with the face value of $1,000. The bond pays interest rate semiannually, and the bond has 20-year to maturity, the market required interest rate on the bond is 8 percent. (2 points)

What is the current price of this bond?

Solution

Cash Flow = $50

Face Value = $1,000

N = 20 * 2 = 40

i = 8% / 2 = 4%

Present Value = 50(P/A, 4%, 40) + 1000(P/F, 4%, 40)

                       = 50(19.793) + 1000(0.2083)

                       = 989.65 + 208.3

                      = $1,197.95

Thus, the current price of this bond is $1,197.95