Nungesser Corporation has issued bonds that have a 9 percent coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5 percent. What is the price of the bonds?

 Nungesser Corporation has issued bonds that have a 9 percent coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5 percent. What is the price of the bonds?

Answer

Answer :1) Calculation of Price of Bond :

Price of Bond = [Coupon * PVAF@4.25% for n periods] + [Face Value * PVF@YTM% for nth period ]

n = Number of year to maturity * 2 = 8 * 2 = 16 (Multiplied by 2 as coupons paid semiannually)

YTM = 8.5% / 2 = 4.25% (Divided by 2 as coupons paid semiannually)

Coupon = 1000 * 9% = 90 / 2 = 45 (Divided by 2 as coupons paid semiannually)

Price of Bond = [45 * PVAF@4.25% for 16 periods] + [1000 * PVF@4.25% for 16th period ]

= [45 * 11.4403094932] + [1000 * 0.51378684644]

= 514.813927194 + 513.78684644

= 1028.60

Thanks