Question

What would be the current price of a bond maturing in 20 years if it promised...

What would be the current price of a bond maturing in 20 years if it promised annual coupons of $60 and has a 7% yield to maturity? Assume a par value of $1000

PLEASE SHOW ALL WORK

What is the current yield of the bond in the problem above?

PLEASE SHOW ALL WORK

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Answer #1

Price of bond is basically the PV of all cashflows associated with the bonds - namely coupons and maturity amount.

Price of bond can be calculated using the formula:

C = 60, i = 7%, n = 20, M = 1000

P = 635.6409 + 258.419

P = $894.06

Current Yield = Annual Coupon/Current Price of Bond = 60/894.06 = 6.71%

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