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Suppose that you purchased a A rated $5000 annual coupon bond with an 6.9% coupon rate...

Suppose that you purchased a A rated $5000 annual coupon bond with an 6.9% coupon rate and a 13-year maturity at par value. The current rate on 13-year US treasuries is 3%. Two years later, you look in the newspaper, and find that the yield on comparable debt is 9.345%, how much is the bond currently worth?

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Answer #1

Face/Par Value of bond = $5000

Annual Coupon Bond = $5000*6.9%

= $345

No of years to maturity from now (n) = 13 years - 2 years = 11

Current Yield on comparable Bonds(YTM) = 9.345%

Calculating the Market price of Bond:-

Price = $2309.993+ $1871.465

Price = $4181.46

So, the bond currently worth is $4181.46

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