Homework SourseGrowl Co issued 16year bonds a year ago at a coupon rate of
Growl Co. issued 16-year bonds a year ago at a coupon rate of 7 percent. The bongs make semiannual payments. If the YTM on these bonds is 9 percent, what is the current bond price?
Growl Co. issued 16-year bonds a year ago at a coupon rate of 7 percent. The bongs make semiannual payments. If the YTM on these bonds is 9 percent, what is the current bond price?
Solution
Par Value of the bond = $1,000
Coupon Amount = $35 [($1,000 x 7%) x ½ ]
Yield to Maturity = 4.5% [9% x ½]
Maturity Period = 16 Years x 2 = 32 Years
Current Price of the Bond = Present Value of the Coupon Payments + Present Value of the Par Value
= $35 [PVIFA 4.5%, 32 Years] + $1,000[PVIF 4.5%, 32 Years]
= [$35 x 16.788891] + [$1,000 x 0.244499]
= $587.61 + 244.50
= $832.11
“ Current Price of the Bond = $832.11 “
