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Sun Tans Co. has 7 percent coupon bonds on the market that has 4 years left...

Sun Tans Co. has 7 percent coupon bonds on the market that has 4 years left to maturity. Face value of the bond is $1,000. The bonds make annual coupon payments. If the YTM on these bonds is 11%, what is the current bond price?

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Answer #1

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The theoratical Bond Price is equal to the Present Value of Future Benefits that an Investor would get from such Bond (ie Coupun payment & Redeemable Value) till its Holding Period.

Bond Price = Present Value of Coupon Payments (+) Present Value of Redeemable Value

= 70 * PVAF (at 11%, 4yrs) + 1000 * PVF (at 11%, 4th year)

= $ 70 * 3.1024 + $ 1000 * 0.6587

= $ 15201.76 + $ 658.7

= $ 15860.46

HOPE YOU ARE CLEAR WITH THE SOLUTION. STILL IF ANT DOUBT PLEASE ASK IN COMMENT :)

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