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Lycan, Inc., has 8.3 percent coupon bonds on the market that have 7 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 10.3 percent, what is the current bond price

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Shahzaibfaraz

Answer:

Bond Price = $903.585916 rounded off to $903.59

Explanation:

To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is an annual bond, the coupon payment, number of periods and annual YTM will be,

Coupon Payment (C) = 1,000 * 0.083  = $83

Total periods (n) = 7

r or YTM = 0.103

The formula to calculate the price of the bonds today is attached.

Bond Price = 83 * [( 1 - (1+0.103)^-7) / 0.103]  + 1000 / (1+0.103)^7

Bond Price = $903.585916 rounded off to $903.59

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