Question

Problem 6-6 Bond Prices [LO 2] 

Dufner Co. issued 17-year bonds one year ago at a coupon rate of 7.8 percent. The bonds make semiannual payments. 

If the YTM on these bonds is 5.5 percent, what is the current dollar price assuming a par value of $1,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 

Current bond price = _______ 

Answer 1

Price of a bond is the present value of its cash flows. The cash flows are the coupon payments and the par value receivable on maturity

Price of bond is calculated using PV function in Excel :

rate = 5.5%/2 (Semiannual YTM of bonds = annual YTM / 2)

nper = 16 * 2 (16 years remaining until maturity with 2 semiannual coupon payments each year)

pmt = 1000 * 7.8% / 2 (semiannual coupon payment = par value * coupon rate / 2)

fv = 1000 (par value receivable on maturity)

PV is calculated to be $1,242.65

A1 x fc =PV(5.5%/2,16*2,1000*7.8%/2,1000) D F G B C 1 S(1,242.65)