Wednesday, 16 October 2013

App Store Co. issued 17-year bonds one year ago at a coupon rate of 6.8 percent. The bonds make semiannual payments.

App Store Co. issued 17-year bonds one year ago at a coupon rate of 6.8 percent. The bonds make semiannual payments.

Required:
If the YTM on these bonds is 5.4 percent, what is the current bond price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

  Current bond price $  


Explanation:
To find the price of this bond, we need to realize that the maturity of the bond is 16 years. The bond was issued one year ago, with 17 years to maturity, so there are 16 years left on the bond. Also, the coupons are semiannual, so we need to use the semiannual interest rate and the number of semiannual periods. The price of the bond is:

P = $34.00(PVIFA2.70%,32) + $1,000(PVIF2.70%,32)
P = $1,148.73

Calculator Solution:
  
Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

Enter
16 × 2
5.4% / 2
±$68 / 2
±$1,000

N
I/Y
PV
PMT
FV
Solve for
$1,148.73

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