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Suppose that you purchased a Baa rated $1000 annual coupon bond with an 7.8% coupon rate...

Suppose that you purchased a Baa rated $1000 annual coupon bond with an 7.8% coupon rate and a 19-year maturity at par value. The current rate on 19-year US treasuries is 3%. Two years later, you look in the newspaper, and find that the yield on comparable debt is 7.080%, how much is the bond currently worth?

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Answer #1

Face/Par Value of bond = $1000

Annual Coupon Bond = $1000*7.8%

= $78

No of years to maturity from now (n) = 19 years - 2 years = 17

Current Yield on comparable Bonds(YTM) = 7.080%

Calculating the Market price of Bond:-

Price = $757.330 + $312.578

Price = $1069.91

So, the bond currently worth is $1069.91

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