Question

3- Bond A has the following features:          Face value = $1,000,        Coupon Rate = 4%,       ...

3-

Bond A has the following features:

         Face value = $1,000,       

Coupon Rate = 4%,       

Maturity = 10 years, Yearly coupons

         The market interest rate is 4.6%

What is today’s price of bond A?

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Answer #1

Information provided:

Face value= future value= $1,000

Time= 10 years

Coupon rate= 4%

Coupon payment= 0.04*1,000= $40

Yield to maturity= 4.6%

The current price of the bond is calculated by computing the present value of the bond.

Enter the below in a financial calculator to compute the present value of the bond:

FV= 1,000

N= 4

PMT= 40

I/Y= 4.6

Press the PMT key and PV to calculate the present value of the bond.

The value obtained is 952.76.

Therefore, the current price of the bond is $952.76.

In case of any query, kindly comment on the solution.

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