Question

A Ford Motor Co. coupon bond has a coupon rate of 6.55​%, and pays annual coupons. The next coupon is due tomorrow and the bond matures 28 years from tomorrow. The yield on the bond issue is 6.4​%. At what price should this bond trade​ today, assuming a face value of ​$1,000​?

Answer 1

Face Value = $1,000

Annual Coupon Rate = 6.55%
Annual Coupon = 6.55% * $1,000
Annual Coupon = $65.50

Time to Maturity = 28 years
Annual YTM = 6.40%

Next coupon payment is due tomorrow

Price of Bond = $65.50 + $65.50/1.0640 + $65.50/1.0640^2 + … + $65.50/1.0640^27 + $65.50/1.0640^28 + $1,000/1.0640^28
Price of Bond = $65.50 * 1.0640 * (1 - (1/1.0640)^29) / 0.0640 + $1,000 * (1/1.0640)^28
Price of Bond = $65.50 * 13.874229 + $1,000 * 0.176049
Price of Bond = $1,084.81