A company's bonds have a face value of $1,000

Finance Dec 19, 2020

A company's bonds have a face value of $1,000. The bonds carry a 7% coupon, pay interest semiannually, and mature in 7 years. What is the current value of these bonds if the yield to maturity is 10.00%?

Expert Solution

Semiannual interest = $1,000 * 0.07 * 6/12 = $35

Current bond price = $35(PVIFA 5%,14) + $1,000(PVIF 5%,14)

Current bond price = ($35 * 9.89864093973) + ($1,000 * 0.50506795295)

Current bond price = $851.52

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