Question

Bavendar Industries issued a 30-year bond in March 2009 with a 12% annual coupon rate. Today, the market rate for similar bonds is 7%. What is this bond worth today?

Answer 1

K = N

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

k=1

K =20

Bond Price =∑ [(12*1000/100)/(1 + 7/100)^k]     +   1000/(1 + 7/100)^20

k=1

Bond Price = 1529.7