ABC Co. issued 14-year bonds a

Question

ABC Co. issued 14-year bonds a year ago at a coupon rate of7.7%. The bonds make semiannual payments. If the YTM on these bondsis 6.0%, what is the current bond price? (Do not roundintermediate calculations. Round the final answer to 2 decimalplaces. Omit $ sign in your response.)  Answer:  Solution:Current bond price is      1151.95Working Notes:Sincethe bond was issued a year ago means , it remaining life other wordyears to maturity will 1 year lesser = 14-1 = 13 yearsCurrent bond price the present value of all the cash flow duringthe remaining life of the bond , and these cash flow is discountedby YTM of the bond in other word market interest rate for the bond. And the cash flow in the life of the bond are semi annual couponsand at end of life par value of bond as redemption value.Bond Price = Periodic Coupon Payments x Cumulative PVF @ periodicYTM (for t=0 to t=n) + PVF for t=n @ periodic YTM x Face value ofBondCoupon Rate = 7.7%Annual coupon = Face value of bond x Coupon Rate = 1,000 x 7.7% =$77Semi annual coupon = Annual coupon / 2 = $77/2=$38.5YTM= 6% p.a (annual)  Semi annual YTM= 6%/2 = 3%n= no.of coupon = No. Of years x no. Of coupon in a year= 13 x 2 = 26Bond Price = Periodic Coupon Payments x Cumulative PVF @ periodicYTM (for t= to t=n) + PVF for t=n @ periodic YTM x Face value ofBond= $38.5 x Cumulative PVF @ 3% for 1 to 26th + PVF @ 3% for 26thperiod x 1000= 38.5 x 17.8768424 + 1,000 x 0.463694727=1151.953159=$1,151.95HenceCurrent price of the bond is     1151.95Price is more than par value of 1000 as coupon rate is higher thanYTM of the bondCumulative PVF @ 3% for 1 to 26th is calculated = (1 - (1/(1 +0.03)^26) ) /0.03 =17.87684242PVF @ 3% for 26th period is calculated by = 1/(1+i)^n = 1/(1.03)^26=0.46369473Please feel free to ask if anything about above solution in commentsection of the question.

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ABC Co. issued 14-year bonds a

"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"

Calculate the price of your order

Solution:
	Current bond price is 1151.95

Working Notes:
	Sincethe bond was issued a year ago means , it remaining life other wordyears to maturity will 1 year lesser = 14-1 = 13 years


	Current bond price the present value of all the cash flow duringthe remaining life of the bond , and these cash flow is discountedby YTM of the bond in other word market interest rate for the bond. And the cash flow in the life of the bond are semi annual couponsand at end of life par value of bond as redemption value.




	Bond Price = Periodic Coupon Payments x Cumulative PVF @ periodicYTM (for t=0 to t=n) + PVF for t=n @ periodic YTM x Face value ofBond


	Coupon Rate = 7.7%
	Annual coupon = Face value of bond x Coupon Rate = 1,000 x 7.7% =$77
	Semi annual coupon = Annual coupon / 2 = $77/2=$38.5
	YTM= 6% p.a (annual)
	Semi annual YTM= 6%/2 = 3%
	n= no.of coupon = No. Of years x no. Of coupon in a year
	= 13 x 2 = 26

	Bond Price = Periodic Coupon Payments x Cumulative PVF @ periodicYTM (for t= to t=n) + PVF for t=n @ periodic YTM x Face value ofBond


	= $38.5 x Cumulative PVF @ 3% for 1 to 26th + PVF @ 3% for 26thperiod x 1000
	= 38.5 x 17.8768424 + 1,000 x 0.463694727
	=1151.953159
	=$1,151.95

Hence	Current price of the bond is 1151.95
	Price is more than par value of 1000 as coupon rate is higher thanYTM of the bond

Cumulative PVF @ 3% for 1 to 26th is calculated = (1 – (1/(1 +0.03)^26) ) /0.03 =17.87684242
PVF @ 3% for 26th period is calculated by = 1/(1+i)^n = 1/(1.03)^26=0.46369473

Please feel free to ask if anything about above solution in commentsection of the question.