Question

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, 10 years to maturity, and a coupon rate of 6.12 percent paid annually.

If the yield to maturity is 2.73 percent, what is the current price of the bond?

Answer 1

We know that,

Price of the bond = Present value of all the annual coupons and face value discounted at ytm

Face Value = 1000

Annual Coupon = 6.12% * 1000 = 61.2

Ytm =   2.73%

Number of payments = 10

Price of the bonds = 61.2/(1+0.0273)^1 + 61.2/(1+0.0273)^2 +61.2/(1+0.0273)^3 +61.2/(1+0.0273)^4 +61.2/(1+0.0273)^5 +61.2/(1+0.0273)^6 +61.2/(1+0.0273)^7 +61.2/(1+0.0273)^8 +61.2/(1+0.0273)^9 +61.2/(1+0.0273)^10 + 1000/(1+0.0273)^10

Price of the bonds = 1293.20 Answer