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15 January, 12:43

TravelEasy Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the current yield to maturity is 8%, what is the firm's current price per bond?

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  1. 15 January, 16:14
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    Coupon (R) = 14% x $1,000 = $140

    Bond yield (kd) = 8% = 0.08

    No of years (n) = 30 years

    No of compounding periods (m) = 2

    Po = R/m (1 - (1+Kd/m) - nm/Kd/m + FV / (1+Kd/m) nm

    Po = $140/2 (1 - (1+0.08/2) - 30x2 + 1,000 (1+0.08/2) 30x2

    0.08/2

    Po = $70 (1 - (1+0.04) - 60 + 1,000 / (1 + 0.04) 60

    0.04

    Po = $70 (1 - (1.04) - 60 + 1,000 / (1.04) 60

    0.04

    Po = 70 (22.6235) + 95.06

    Po = $1,678.71

    Explanation:

    The price of a bond is equal to the present value of coupon plus the present value of the face value.
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Home » Business » TravelEasy Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the current yield to maturity is 8%, what is the firm's current price per bond?
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