Question
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere...
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, 5 years to maturity, and a coupon rate of 7 percent paid annuallly. If the yield to maturity is 9 percent, what is the current price of the bond?
Homework Answers
Answer #1
Price of a bond is the present value of its cash flows. The cash flows are the coupon payments and the face value receivable on maturity
Price of bond is calculated using PV function in Excel :
rate = 9% (YTM of bond)
nper = 5 (Years remaining until maturity with 1 coupon payment each year)
pmt = 1000 * 7% (annual coupon payment = face value * coupon rate)
fv = 1000 (face value receivable on maturity)
PV is calculated to be €922.21
Price of bond is €922.21
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