Question

If a bond has annual interest payments of $50 and a par value of $1,000, with...

If a bond has annual interest payments of $50 and a par value of $1,000, with six years to maturity, what is its current market value if bonds like it are currently offering a 7 percent yield?

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Answer #1

Information provided:

Par value= future value= $1,000

Annual payment= $50

Time= 6 years

Yield to maturity= 7%

The current market price is calculated by computing the present value of the bond.

The below has to be entered in a financial calculator to compute the present value of the bond:

FV= 1,000

PMT= 50

N= 6

I/Y= 7

Enter the CPT key and PV to calculate the present value.

The value obtained is 904.67.

Therefore, the current market value of the bond is $904.67.

In case of any further queries, kindly comment on the solution.

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