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Homework answers / question archive / Pacific Brands issued 10-year bon ds 4 years ago with a coupon rate of 9%, paid semi-annually

Pacific Brands issued 10-year bon ds 4 years ago with a coupon rate of 9%, paid semi-annually

Finance

Pacific Brands issued 10-year bon

ds 4 years ago with a coupon rate

of 9%, paid semi-annually. At

the time of issue, the bonds sold

at par. Today, bonds of similar ri

sk and maturity will pay a coupon

rate of 6%. Assuming semi-annual coupon payments, what will be the current market price of the

company’s bonds?

pur-new-sol

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Computation of Current Market Price of Bonds using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Current Market Price of Bonds = ?

Rate = 6%/2 = 3% compounded semiannually

Nper =(10-4) Years*2 = 6 Years*2 = 12 Periods (Semiannual)

PMT = $1,000*9%/2 = $45

FV = $1,000

Substituting the values in formula:

=-pv(3%,12,45,1000)

PV or Current Market Price of Bonds = $1,149.31

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