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ch 13 prob 8 Bond A has the following terms (assume annual coupons) coupon rate 10%...

ch 13 prob 8


Bond A has the following terms (assume annual coupons)


coupon rate 10%

principal $1000

term to maturity 8 years

Bond B has the following terms


coupon rate 5%

principal $1000

term to maturity 8 years

What is the price of bond A if interest rates are 10%? Enter just the number to the nearest dollar, no symbols or commas.


(Hint: think of the relationship between coupon rate and yield and how that affects bond price)
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Answer #1

Ans:- we will use the PV function of excel to find the price of bonds.

Rate=10%, Nper=8, Pmt=-$1000*10%=-$100, FV=-$1000.

Therefore, the Price of bond A is 1000.

Note:- If the Yield to maturity and coupon rate are the same then the price of the bond will be the same as the par value or principal amount of the bond. In the case of bond A, the YTM and coupon rate is the same i.e 10%, that why the price of the bond is the same as the principal amount of the bond.

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