Question

Calculate the current price of a $1,000 par value bond that has a coupon rate of 18 percent, pays coupon interest annually, has 21 years remaining to maturity, and has a current yield to maturity (discount rate) of 7 percent

Answer 1

Information provided:

Par value= future value= $1,000

Coupon rate= 18%

Coupon payment= 0.18*1,000= $180

Time= 21 years

Yield to maturity= 7%

The current price of the bond is computed by calculating the present value.

Enter the below in a financial calculator:

FV= 1,000

PMT= 180

N= 21

I/Y= 7

Press the CPT key and PV to compute the present value.

The value obtained is 2,191.91.

Therefore, the current price of the bond is $2,191.91.

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