1. USP issues10-year bonds of $1,000 face value, with a coupon (interest payment) of 5.5% ($55). What is the current face value of the bonds if investors believe a yield to maturity should be 7%?
Information provided:
Face value= future value= $1,000
Time= 10 years
Coupon rate= 5.5%
Coupon payment= 0.055*1,000= $55
Yield to maturity= 7%
The current face value of the bond is calculated by computing the present value of the bond.
The below has to be entered in a financial calculator to compute the present value of the bond:
FV= 1,000
PMT= 55
I/Y= 7
N= 10
Press the CPT key and PV to compute the present value.
The value obtained is 894.65.
Therefore, the current face value of the bond is $894.65.
In case of any query, kindly comment on the solution.
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