A 30-year, $1,000 par value bond has an annual payment coupon of 7.5%. The bond currently sells for $910. If the yield to maturity remains at its current rate what will the price be 10 years from now?
The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100
Since this formula gives an approximate value, the financial calculators can be used alternatively.
where,
Par Value = $ 1,000
Market Price = $ 910
Annual rate = 7.5% and
Maturity in Years = 30 Years
Hence the yield to maturity = 8.32%
Price of bond = Coupon * PVIFA (n,i)+ face value * PVIF (n,i)
Price of bond= (1000*7.5%)* PVIFA (20,8.32%) + 1000* PVIF (20 ,8.32%)
Price of bond = 75*9.588685877155180 + 1000 *0.2022213350206890
= $ 921.37
Hence the correct answer is $ 921.37
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