Vulcan, Inc., has 7 percent coupon bonds on the market that have 13 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 8.4 percent, what is the current bond price? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

Question

Bryson

Business

22 November, 20:16

Vulcan, Inc., has 7 percent coupon bonds on the market that have 13 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 8.4 percent, what is the current bond price? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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Answers (1)

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Demetrius Wheeler · Answer 1

Current bond price is $891.74

Explanation:

Coupon rate: 7%

Tenor (Nper) : 13 years

Par value: $1,000

YTM (discounting rate) : 8.4%

Coupon received annually (PMT) = $1,000 * 7% = $70

Current bond price = present value of coupon received annually + present value of bond

To calculate PV of coupon received, we use excel in formula PV (discounting rate, Nper, - PMT) = PV (8.4%,13,-70) = $541.30

or calculate manually = 70 / (1+8.4%) ^13+70 / (1+8.4%) ^12+ ... + 70 / (1+8.4%) ^1 = $541.30

present value of bond = 1000 / (1+8.4%) ^13 = $350.44

Current bond price = $541.30 + $350.44 = $891.74