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, 20 years to maturity, and a coupon rate of 7.8 percent paid annually.
If the yield to maturity is 8.9 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.)
Face Value - €1000
Coupon Rate - 7.8%
Years to maturity - 20
Yied to Maturity - 8.9%
Current Price (Intrinsic value) of the bond = Present value of all the interest payments and maturity proceeds (using YTM as discount rate)
Interest (yearly) - €78
Maturity Value (assuming Maturity at Par) - €1000
Present Value Annuity factor (8.9%, 20years) - 9.375
Present Value Interest factor (8.9%, 20th year) - 0.1817
Intrinsic Value of Bond (Bond Price) = (78*9.375) + (1000*0.1817) ==> € 898.87
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