Harrison Co. issued 16-year bonds one year ago at a coupon rate of 6.7 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current dollar price assuming a $1,000 par value?

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Business

Dominguez

1 March, 08:59

Harrison Co. issued 16-year bonds one year ago at a coupon rate of 6.7 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current dollar price assuming a $1,000 par value?

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Alonzo · Answer 1

R = 6.7% x 1,000 = $67

Po = R (1 - (1+r) - n) / k + FV / (1+r) n

Po = 67 (1 - (1+0.053) - 16) / 0.053 + 1,000/1.05316

Po = 67 (1-0.4377) / 0.053 + 1,000/2.2848

Po = 37.8751/0.053 + 437.68

Po = 714.62 + 437.68

Po = $1,152.30

The current dollar price of the bond = $1.152.30

Explanation:

The current market price of a bond is equal to periodic coupon discounted at the annuity interest factor for the maturity period plus the present value of the face value discounted at yield to maturity (YTM).