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a bank issued 14-year bonds a year ago at a coupon rate of 7
a bank issued 14-year bonds a year ago at a coupon rate of 7.1%. The bonds make semiannual payments. If the YTM on these bonds is 5.4%, what is the current bond price? (Do not round intermediate calculations. Round the final answer to 2 decimal places. )
Expert Solution
Computation of Current Bond's Price using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Current Bond Price = ?
Rate = 5.4%/2 = 2.7% compounded semiannually
Nper = (14 years-1 year) * 2 = 26 periods
PMT = $1,000*7.1% = $35.50
FV = $1,000
Substituting the values in formula:
=-pv(2.7%,26,35.50,1000)
PV or Current Bond's Price = $1,157.34
So, Current Bond's Price is $1,165.51
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