Answer:
$1,137.94
Explanation:
The value of the bond is the present value (PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).
Value of Bond = PV of interest + PV of RV
The value of bond for Wesimann Co be worked out as follows:
Step 1
PV of interest payments
Semi annul interest payment
= 8.5% × 1000 × 1/2
= $42.5
Semi-annual yield = 6.8/2 = 3.4 % per six months
Total period to maturity (in months)
= (2 × 12) = 24 periods (Note it was issued a year ago)
PV of interest =
PV = A × (1-(1+r)^(-n))/r
r-3.4 %- n- 24
42.5 × (1- (1+0.034)^(-2× 12)/0.034)
=$689.70
Step 2
PV of Redemption Value
= 1,000 × (1.034)^(-2× 12)
= 448.236
Step 3
Price of bond
= 689.70 + 448.23
= $1,137.94
Answer:
Current Price of the bond is $1,137.94
Explanation:
Price of a bond equals present value of coupon payments and the present value of face value at maturity
Face value = $1000
years to maturity equals to 12 years since the bond was issued a year ago and had 13 years to mature and payments are made semiannual = 12*2 =24
coupon payment since coupons are paid semiannual
1000*8.5/2=$40.25
YTM = 6.8%/2 = 3.4%
bond price = C * [1-(1+r)^-n / r) + FV/ (1+r)^n
=42.5 * [ 1-(1+0.034)^-24/0.034] + 1000/(1+0.034)^24
=689.7046 + 448.2363
=$1,137.94
