Question

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?

Answer #1

**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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