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What is the price of a twenty-year bond if the YTM is 7%, has a coupon...

What is the price of a twenty-year bond if the YTM is 7%, has a coupon rate of 6.8%, and it has ten years left to maturity?

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Answer #1

Price of a bond = Coupon Amount*PVAF(r,n) + Redemption Amount*PVIF(r,n)

Here: PVAF is the present value annuity factor formulated as [1 - 1 / (1 + r)n] / r

PVIF is the present value interest factor formulated as 1 / (1+r)n

r is the YTM of the bond

n is the remaining term to maturity

Step: 1. We have been given:

YTM of the bond = 7%

Remaining Term to Maturity = 10 years

Assuming Face Value of the Bond = $1,000

Coupon Rate = 6.8%

Coupon Amount = $68

Step: 2. Price of the bond

P0 = 68*PVAF(7%,10) + 1,000*PVIF(7%,10)

P0 = 68* 7.02358 + 1,000*0.508349

P0 = 477.60 + 508.35

P0 = $985.95

Therefore Price of the bond is $985.95.


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