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Suppose that you purchased a Baa rated $1000 annual coupon bond with an 8.1% coupon rate...

Suppose that you purchased a Baa rated $1000 annual coupon bond with an 8.1% coupon rate and a 9-year maturity at par value. The current rate on 9-year US treasuries is 3%.  Two years later, you look in the newspaper, and find that the yield on comparable debt is 6.892%, how much is the bond currently worth?

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Answer #1

  

_______________________________

_______________________________

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 6.892%

And n is the no of Compounding periods 7 years

Coupon 8.1%

=

= 1065.35

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