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, 15 years to maturity, and a coupon rate of 6.5 percent paid annually.

If the yield to maturity is 7.6 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Information provided:

Par value= future value= $1,000

Time= 15 years

Yield to maturity= 7.6%

Coupon rate= 6.5%

Coupon payment= 0.065*1,000= $65

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

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 15

I/Y= 7.6

PMT= 65

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

The value obtained is 903.50.

Therefore, the current price of the bond is $903.50.

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