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What should the current market price be for a bond with a $1,000 face value, a...

  1. What should the current market price be for a bond with a $1,000 face value, a 10% coupon rate paid annually, a required rate of return of 12%, and 20 years until maturity?
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Answer #1

Information provided:

Face value= future value= $1,000

Coupon rate= 10%

Coupon payment= 0.10*1,000= $100

Yield to maturity= 12%

Time= 20 years

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

The below has to be entered in a financial calculator to compute the present value:

FV= 1,000

PMT= 100

I/Y= 12

N= 20

The value obtained is 850.61.

Therefore, the current market price of the bond is $850.61.

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

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