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A company issued bonds with a 25-year maturity. The bonds’ coupon rate is 5%. What is...

A company issued bonds with a 25-year maturity. The bonds’ coupon rate is 5%. What is the most you should pay for the bond if your required return is 8%?

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Answer #1

Given that:
Time to maturity or number of periods to maturity=25 years
Coupon rate=5%
Required return or yield to maturity=8%
We can take face value of the bond as $1000 for better calculations.
Now, coupon payments=Face value*Coupon rate=$1000*5%=$50
We can calculate the present value of the bond using excel.


So, present value=$679.76
Negative sign is shown in the excel for present value because it is a cash outflow.
The we should pay for the bond=$679.76

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