Bond Valuation with SemiAnnual Payments?
Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 10.5%. What is the price of the bonds? Round your answer to the nearest cent.
- PrivateBankerLv 79 years agoFavorite Answer
The price of the bonds is the present value of the cash flows discounted at the 10.5% rate>discount at the semi-annual rate: 0.105/2 = 0.0525
Here are your cash flows:
semi-annual coupon: 1,000 * 0.10/2 = $50
total # of coupons: 8yrs * 2times per year = 16
cash flows #1 thru #15: $50
16th cash flow = coupon + par = $1,050
PV = 50/1.0525 + 50/1.0525^2 + 50/1.0525^3+...+50/1.0525^15 + 1,050/1.0525^16
= $973.38 <Price