Question

?(Bond valuation)?Calculate the value of a bond that matures in 17 years and has a $1,000 par value. The annual coupon interest rate is 12 percent and the? market's required yield to maturity on a? comparable-risk bond is 9 percent. The value of the bond is ?$____. ? (Round to the nearest? cent.)

Answer 1

Value of bond = Cupon Amount * Present Value of Annuity Factor (r,n) + Redemption Amount * Present Value of Interest Factor (r,n)

Where Cupon Amount = $1000 * 12%

= $120

Redemption Amount = $1000

r or yield to maturity= 9%

n or remaining maturity = 17 years

Present Value of Annuity Factor (9% ,17) = 8.5436

Present Value of Interest Factor (9% ,17) = 0.2311

Therefore

Value of bond = $120 * 8.5436 + $1000 * 0.2311

Value of bond =$1025.232 + $231.1

Value of bond = $1256.332

Rounding to Nearest Cent

Value of bond = $1256.33

Therefore the value of the bond is $1256.33 (Round to the nearest cent)