Wesimann Co. issued 13-year bonds a year ago at a coupon rate of 8.5 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.8 percent, what is the current bond price?

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