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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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ahmedgodtrust

Answer:

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).

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