Question

Calculate the value of a bond that matures in 13 years and has a $1,000 par value. The annual coupon interest rate is 13 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 11 percent.

Answer 1

Bond valuation is a technique for determining the theoretical fair value of a particular bond. Bond valuation includes calculating the present value of a bond's future interest payments.

Interest on coupon rate @13%= 1000*13%= 130

Value of bond= 130/(1+I)^1 + 130/(1+I)^2............to (130+1000)/(1+I)^n

Where, I equal to percentage of market yield and n= term of bond

Value of bond = 130/(1+1.11)^1 + 130/(1+1.11)^2.............to (130+1000)/(1+1.11)^13= 117.11+105.69+95.6+86.09+77.3+69.5+62.8+56.52+50.9+45.9+41.2+37.2+291.2= 1137.01

SUMMARY

Value of bond is 1137.01