Aloha, Inc, has 6 percent coupon bonds on the market that have 10 years left to maturity

Finance Dec 02, 2020

Aloha, Inc, has 6 percent coupon bonds on the market that have 10 years left to maturity. If the YTM on these bonds is 7.7 percent, what is the current bond price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expert Solution

Annual coupon=1000*6%

=60

Hence current price=Annual coupon*Present value of annuity factor(7.7%,10)+1000*Present value of discounting factor(7.7%,10)

=60*6.80183443+1000*0.476258749

=$884.37(Approx)

NOTE:

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=60[1-(1.077)^-10]/0.077

=60*6.80183443

2.Present value of discounting factor=1000/1.077^10

=1000*0.476258749

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