Question

Calculate the price of a 9 percent coupon (annual coupons), $1,000 face value, 4 year bond if the

appropriate discount rate is 8 percent. Show a timeline of the cashflows.

Answer 1

K = N

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

k=1

K =4

Bond Price =∑ [(9*1000/100)/(1 + 8/100)^k]     +   1000/(1 + 8/100)^4

k=1

Bond Price = 1033.12

Year	0	1	2	3	4
Cash flow stream	0	90	90	90	1090