Marconi Corporation issued 30 year semi-annual 14% coupon bonds. If the current yield to maturity is 8%, what is the ﬁrm's current price?

Question

Quizplus · Accepted Answer

First, we need to calculate the semi-annual coupon payment: 
Coupon payment = (14% / 2) * face value = 0.07 * face value

Next, we need to calculate the present value of the bond's future cash flows, which includes the semi-annual coupon payments and the face value payment at maturity: 
PV = (0.07 * face value) / (1 + 0.08/2)^1 + (0.07 * face value) / (1 + 0.08/2)^2 + ... + (0.07 * face value + face value) / (1 + 0.08/2)^60

Using a financial calculator or spreadsheet software, we can calculate the present value to be $1,678.70. Therefore, the current price of the bond is $1,678.70.

Marconi Corporation Issued 30 Year Semi-Annual 14% Coupon Bonds