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Toys Co. issued 10-year bonds a year ago at a coupon rate of 10%. The bonds...

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Finance

Toys Co. issued 10-year bonds a year ago at a coupon rate of10%. The bonds make semiannual payments and have a par value of$1,000. If the YTM on these bonds is 9%, what is the current bondprice?

Answer & Explanation Solved by verified expert
4.0 Ratings (465 Votes)

Current Bond Price =Present value of future cash flows
Present Value (PV) of Cash Flow:
(Cash Flow)/((1+i)^N)
i=Discount Rate=Semi annual YTM=(9/2)%=4.5%=0.045
N=Semi annual period of cash flow
Semi annual coupon payment $50 (1000*10%)/2
Payment at maturity end of year10 $1,000
N A B=A/(1.045^N)
Semi annual period Cash Flow Present Value
1 $50 $48
2 $50 $46
3 $50 $44
4 $50 $42
5 $50 $40
6 $50 $38
7 $50 $37
8 $50 $35
9 $50 $34
10 $50 $32
11 $50 $31
12 $50 $29
13 $50 $28
14 $50 $27
15 $50 $26
16 $50 $25
17 $50 $24
18 $50 $23
19 $50 $22
(1000+50) 20 $1,050 $435
Total $1,065
Current Bond Price $1,065

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Transcribed Image Text

Toys Co. issued 10-year bonds a year ago at a coupon rate of10%. The bonds make semiannual payments and have a par value of$1,000. If the YTM on these bonds is 9%, what is the current bondprice?

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