Question

A Ford Motor Co. coupon bond has a coupon rate of 6.85​%, and pays annual coupons....

A Ford Motor Co. coupon bond has a coupon rate of 6.85​%, and pays annual coupons. The next coupon is due tomorrow and the bond matures 28 years from tomorrow. The yield on the bond issue is 6.15%. At what price should this bond trade​ today, assuming a face value of \$1,000​?

Trading Price of the Bond today

The Current Price of the Bond is the Present Value of the Coupon payments plus the Present Value of Par Value

Par Value = \$1,000

Annual Coupon Amount = \$68.50 [\$1,000 x 6.85%]

Yield to Maturity (YTM) = 6.15%

Maturity Years = 28 Years

Current Price of the Bond = Present Value of the Coupon payments + Present Value of Par Value

= \$68.50[PVIFA 6.15%, 28 Years] + \$1,000[PVIF 6.15%, 28 Years]

= [\$68.50 x 13.20267] + [\$1,000 x 0.18804]

= \$904.38 + \$188.04

= \$1,092.42

Here, the next coupon is due tomorrow, therefore, the trading price of the bond today

= Current Price of the Bond + Next annual coupon payment

= \$1,092.42 + \$68.50

= \$1,160.92

“Hence, the trading price of the Bond today would be \$1,160.92”

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