Nesmith Corporation's outstanding bonds have a $1,000 par value, an 12% semiannual coupon, 9 years to maturity, and an 11% YTM. What is the bond's price? Round your answer to the nearest cent. 2$
Nesmith Corporation's outstanding bonds have a $1,000 par value, an 12% semiannual coupon, 9 years to maturity, and an 11% YTM. What is the bond's price? Round your answer to the nearest cent. 2$
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![### Bond Pricing Calculation
Nesmith Corporation's outstanding bonds have the following characteristics:
- **Par Value:** $1,000
- **Coupon Rate:** 12%, paid semiannually
- **Time to Maturity:** 9 years
- **Yield to Maturity (YTM):** 11%
**Task:** Calculate the bond’s price and round your answer to the nearest cent.
**Answer ($):** [blank box for answer]
To find the bond's price, use the following formula for the present value of an annuity (for coupon payments) and the present value of a lump sum (for the face value):
1. Calculate the present value of the coupon payments (annuity).
2. Calculate the present value of the par value (lump sum).
3. Sum these present values to find the bond price.
Adjust calculations based on semiannual periods (9 years × 2 = 18 periods) and modify interest rates accordingly (divide rates by 2 for semiannual).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0a08c678-100e-4106-b818-092f6da34e38%2Faa699010-804d-464a-8c67-d22e7234a958%2Fh4tc3vb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Bond Pricing Calculation
Nesmith Corporation's outstanding bonds have the following characteristics:
- **Par Value:** $1,000
- **Coupon Rate:** 12%, paid semiannually
- **Time to Maturity:** 9 years
- **Yield to Maturity (YTM):** 11%
**Task:** Calculate the bond’s price and round your answer to the nearest cent.
**Answer ($):** [blank box for answer]
To find the bond's price, use the following formula for the present value of an annuity (for coupon payments) and the present value of a lump sum (for the face value):
1. Calculate the present value of the coupon payments (annuity).
2. Calculate the present value of the par value (lump sum).
3. Sum these present values to find the bond price.
Adjust calculations based on semiannual periods (9 years × 2 = 18 periods) and modify interest rates accordingly (divide rates by 2 for semiannual).
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