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SJU Corp. issued a 10 year bond at a price of $1,000 two years ago in...

SJU Corp. issued a 10 year bond at a price of $1,000 two years ago in the US. The bond pays an annual coupon rate of 8% and the coupon interest is paid every six months. If the current market interest rate for this class of bond is 10%,

a. what is the value of the bond right now?

b. what was the market interest rate for the bond two year ago? Hint: no calculation needed.

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Answer #1

Face/Par Value of bond = $1000

Annual Coupon Bond = $1000*8%*1/2

= $40

No of coupon payments(n) = No of years to maturity*2 = (10 years - 2 years)*2 = 16

Semi-annual Market interest rate(YTM)  = 10%/2 = 5%

Calculating the Market price of Bond:-

Price = $433.511 + $458.112

Price = $891.62

So, the value of the bond right now is $891.62

b). Two years ago the bond was price at $1000 which is a Face Value.

When Bond has price which is equal to its face Value, The Market Interest of that bond is equall to the Coupon rate.

Thus, Market Interest rate is 8%

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