Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon rate of 7 percent paid annually.
If the yield to maturity is 8.1 percent, what is the current price of the bond?
Following are the data derived from the above question
| Par Value | 1,000 |
| Coupon Rate | 7% |
| YTM | 8.10% |
by discounting the coupon of every year, we ll get the value of the bond at present.
| Year | Coupon | PV |
| 1 | $70.00 | $64.75 |
| 2 | $70.00 | $59.90 |
| 3 | $70.00 | $55.41 |
| 4 | $70.00 | $51.26 |
| 5 | $70.00 | $47.42 |
| 6 | $70.00 | $43.87 |
| 7 | $70.00 | $40.58 |
| 8 | $70.00 | $37.54 |
| 9 | $70.00 | $34.73 |
| 10 | $70.00 | $32.12 |
| 11 | $70.00 | $29.72 |
| 12 | $70.00 | $27.49 |
| 13 | $70.00 | $25.43 |
| 14 | $70.00 | $23.53 |
| 15 | $70.00 | $21.76 |
| 16 | $70.00 | $20.13 |
| 17 | $70.00 | $18.62 |
| 18 | $70.00 | $17.23 |
| 19 | $70.00 | $15.94 |
| 20 | $1,070.00 | $225.36 |
| Present Value | $892.80 | |
as the YTM is higher than the coupon rate, the value of the bond will be lower than its par value.
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