Douglas Distributing Inc.has issued 30-year semiannual coupon bonds with a face value of $1,000.If the annual coupon rate is 6% and the current yield to maturity is 7%,what is the firm's current price per bond?

Question

Quizplus · Accepted Answer

The current price of a bond can be calculated using the formula for the present value of an annuity (for the coupon payments) plus the present value of a lump sum (for the face value of the bond). Given a semiannual coupon rate (3% of $1,000 = $30 per period), a yield to maturity of 3.5% per period (since it's semiannual), over 60 periods (30 years times 2), the calculation yields a price of approximately $875.28.