The WeKnowThisStuff Company issued a $1,000 par value, 6% coupon, 8 year bond. The interest is...
The WeKnowThisStuff Company issued a $1,000 par value, 6% coupon, 8 year bond. The interest is paid semiannually and the market is currently requiring 5.5% on this risk level bond. What is the current value of the bond? SHOW ALL WORK FOR FULL CREDIT USING THE TI BAII PLUS CALCULATOR.
Homework Answers
Current Value of the Bond
- The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
- The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
- Here, the calculation of the Bond Price using financial calculator is as follows
|
Variables |
Financial Calculator Keys |
Figures |
|
Par Value/Face Value of the Bond [$1.000] |
FV |
1,000 |
|
Coupon Amount [$1,000 x 6.00% x ½] |
PMT |
30 |
|
Market Interest Rate or Yield to maturity on the Bond [5.50% x ½] |
1/Y |
2.75 |
|
Maturity Period/Time to Maturity [8 Years x 2] |
N |
16 |
|
Bond Price |
PV |
? |
Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $1,032.01.
“Hence, the Current Value of the Bond will be $1,032.01”
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