Sqeekers Co. issued 14-year bonds a year ago at a coupon rate of 8 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.3 percent, what is the current bond price?

Problem 7-6 Bond Prices [LO2]

Sqeekers Co. issued 14-year bonds a year ago at a coupon rate of 8 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.3 percent, what is the current bond price? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

                                          

Current bond price

$

 

Explanation:

To find the price of this bond, we need to realize that the maturity of the bond is 13 years. The bond was issued 1 year ago, with 14 years to maturity, so there are 13 years left on the bond. Also, the coupons are semiannual, so we need to use the semiannual interest rate and the number of semiannual periods. The price of the bond is:

  

P = $40.00(PVIFA3.15%,26) + $1,000(PVIF3.15%,26)

P = $1,149.36

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

 

Enter

26

6.3% / 2

$80 / 2

$1,000

N

I/Y

PV

PMT

FV

Solve for

$1,149.36