Question

Suppose you buy a bond on January 1st, 2014. The principal amount is 1500, the coupon rate is 10%, and the bond matures in exactly 3 years. If the prevailing interest rate is 20%, for how much can you sell the bond on January 1st 2016?

Answer #1

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =1 |

Bond Price =∑ [(10*1500/100)/(1 + 20/100)^k] + 1500/(1 + 20/100)^1 |

k=1 |

Bond Price = 1375 |

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