The ExecUfind Corporation has issued 20-year semiannual coupon bonds with a face value of $1,000.If the annual coupon rate is 10% and the current yield to maturity is 12%,what is the firm's current price per bond?

Question

Quizplus · Accepted Answer

First, we need to calculate the semiannual coupon payment by dividing the annual coupon rate by 2:
Coupon payment = $1,000 x 10% / 2 = $50

Next, we need to calculate the number of semiannual periods (n) over the 20-year life of the bond:
n = 20 years x 2 = 40 semiannual periods

We can then use the bond pricing formula:

Bond price = [Coupon payment x (1 - (1 + yield to maturity)-n ) / yield to maturity] + (Face value / (1 + yield to maturity)n)

Plugging in the values given, we get:

Price = [$50 x (1 - (1 + 0.12/2)-40 ) / (0.12/2)] + ($1,000 / (1 + 0.12/2)40)
Price = $849.54

Therefore, the current price of the bond is $849.54, which corresponds to answer choice B.

The ExecUfind Corporation Has Issued 20-Year Semiannual Coupon Bonds with a Face