Question

Yesterday Google issued 20 Year bonds with a 5% Interest Rate/Coupon when the required rate of return or yield to maturity was 5%. Today, investors are requiring an 8% return or yield to maturity. What will be the new market price of the bond?

Answer 1

Particulars	Cash flow	Discount factor	Discounted cash flow
present value Interest payments-Annuity (8%,20 periods)	$                         50.00	9.81815	$                490.91
Present value of bond face amount -Present value (8%,20 periods)	$                    1,000.00	0.21455	$                214.55
Bond price			$                705.46

Answer is:

705.46

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