Sqeekers Co. issued 11-year bonds a year ago at a coupon rate of 8.3 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.6 percent, what is the current bond price?

Question

Delgado

Business

17 December, 23:32

Sqeekers Co. issued 11-year bonds a year ago at a coupon rate of 8.3 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.6 percent, what is the current bond price?

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Answers (1)

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Stephen Hamilton · Answer 1

The price of the bond today is $1,131.48

Explanation:

Face value (FV) : $1,000

Coupon rate: 8.3%

-> counpon received semi - annually (PMT) = $1000 * 8.3%/2 = $41.5

Tenor: 11 years - > number of payment (NPer) = 11*2 = 22

YTM: 6.6% - > semi-annual rate = 6.6%/2 = 3.3%

Present value = Future Value / (1 + YTM) ^tenor

We can use excel to calculate Present Value of annual payment

= PV (Rate, NPer,-PMT) = PV (3.3%,22,-41.5) = $641.94

The price of bond today = present value of face value + present value of coupon received annually

= 1000 / (1+3.3%) ^22 + 41.5 / (1+3.3%) ^22 + 41.5 / (1+3.3%) ^21 + ... + 41.5 / (1+3.3%) ^1

= 1000 / (1+3.3%) ^22 + 641.94

= 1,131.48