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Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere...

Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 25 years to maturity, and a coupon rate of 7.9 percent paid annually. If the yield to maturity is 9 percent, what is the current price of the bond?

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Answer #1

Information provided:

Par value= future value= $1,000

Time= 25 years

Coupon rate= 7.9%

Coupon payment= 0.079*1,000= $79

Yield to maturity= 9%

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

The present value is computed by entering the below in a financial calculator:

FV= 1,000

N= 25

PMT= 79

I/Y= 9

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

The value obtained is 891.95.

Therefore, the current price of the bond is $891.95.

In case of any query, kindly comment on the solution

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