Question

7.0% annual coupon bond (par value equals $1,000) has 13 years to maturity. The current market interest rate on those bonds is 4.5%. What is the current price for the bond?

Answer 1

ANSWER

• Bond's Price is basically just a Representation of the Present Value of Future Benefits that a Bond Holder would derive in the form of Coupons & Maturity Value

• BOND PRICE = Present Value of Coupons + Present Value of Maturity Value

= Coupon * PVAF _{(at YTM%, n years)} + Maturity Value * PVF _{(at YTM%, n^th year)}

= 70 * PVAF _{(at 4.5%, 13 years)} + 1000 * PVF _{(at 4.5%, 13th year)}

₌ {70 * 9.6828524213} + {1000 * 0.56427164096}

= {677.79966949} + {564.27164096}

= $ 1242.07 {ROUNDED OFF TO CENTS}

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