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Assume that a 7% coupon bond with a 30 year maturity has a par value of...

Assume that a 7% coupon bond with a 30 year maturity has a par value of Ghc1000. Assuming coupon payments are made twice a year; Determine the value of the bond to an investor whose required rate of return is 12 percent
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Answer #1

Information provided:

Par value=future value= $1,000

Time= 30 years*2= 60 semi-annual periods

Coupon rate= 7%/2= 3.50% per semi-annual period

Coupon payment= 0.035*1,000= $35

Yield to maturity= 12%/2= 6% per semi-annual period

The value of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 60

PMT= 35

I/Y= 6

Press the CPT key and PV to compute the present value.

The value obtained is 595.96.

Therefore, the value of the bond is $595.96.

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