What is the bond price of Nesmith Corporation's outstanding bonds?

How is the bond price of Nesmith Corporation's outstanding bonds calculated? The price of Nesmith Corporation's outstanding bonds is approximately $1,019.74 rounded to the nearest cent.

Calculation of Bond Price

Nesmith Corporation's outstanding bonds have a $1,000 par value, a 10% semiannual coupon, 9 years to maturity, and a 12.9% YTM. In order to calculate the bond price, we use the present value formula for bond valuation.

The bond price is the sum of the present value of the coupon payments and the present value of the par value received at maturity. The coupon payment is $1,000 * 10% / 2 = $50 every six months for a total of 18 periods over 9 years.

The discount rate for the bond price calculation is the semiannual YTM divided by 2, which is 6.45%. Using the present value of an annuity formula, we calculate the present value of the coupon payments:

PV(coupon payments) = $50 * [1 - (1 + 6.45%)^-18] / 6.45% ≈ $619.35

Next, we calculate the present value of the par value received at maturity:

PV(par value) = $1,000 / (1 + 6.45%)^18 ≈ $400.39

Finally, we sum the present values of the coupon payments and the par value to get the bond price:

Bond price = PV(coupon payments) + PV(par value) ≈ $619.35 + $400.39 = $1,019.74

Therefore, the price of Nesmith Corporation's outstanding bonds is approximately $1,019.74 rounded to the nearest cent.

← Quality loss function understanding costs of poor quality Understanding wet berry inventory build rate →

More Posts: