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Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 10 years to maturity, and a coupon rate of 6.4 percent paid annually. |
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If the yield to maturity is 7.5 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Price |
€ |
| Current price of the bond=924.5 | |||||||||
| Bond Par Value | 1000 | ||||||||
| Bond Rate | 6.40% | ||||||||
| Period | 10 | Years | |||||||
| Yield | 7.50% | ||||||||
| Value of the Bond=Coupon Amount*(PVIFA, yield rate,Period)+Maturity value*(PVIF, yield rate,Period) | |||||||||
| Value of the Bond=64*(PVIFA, 7.5%,10)+1000*(PVIF, 7.5%,10) | |||||||||
| Value of the Bond=64*(6.8641)+1000*(.485194) | 924.50 | ||||||||
| Working Note: | |||||||||
| Present Value of Annuity=((1-(1+7.5%)^(-10))/7.5%) | 6.8641 | ||||||||
| Present Value of maturity amount=1/(1+7.5%)^10 | 0.485194 | ||||||||
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