Question

Calculate the current price of a $1,000 par value bond that has a coupon rate of 7 percent, pays coupon interest annually, has 18 years remaining to maturity, and has a current yield to maturity (discount rate) of 15 percent.

Answer 1

Information provided:

Par value= future value= $1,000

Coupon rate= 7%

Coupon payment= 0.07*1,000= $70

Time= 18 years

Yield to maturity= 15%

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

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

FV= 1,000

CPT= 70

N=M 18

I/Y= 15

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

The value obtained is 509.76.

Therefore, the current price of the bond is $509.76.

In case of any query, kindly comment on the solution.