Question

What is the value of a bond that has a par value of $1,000, a coupon rate of 10.83 percent (paid annually), and that matures in 15 years? Assume a required rate of return on this bond is 10.33 percent. Round the answer to two decimal places.

Answer 1

Information provided:

Par value= future value= $1,000

Coupon rate= 10.83%

Coupon payment= 0.1083*1,000= $108.30

Time= 15 years

Required rate of return= 10.33%

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

The below has to be entered in a financial calculator to compute the present value

FV= 1,000

PMT= 108.30

N= 15

I/Y= 10.33

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

The value obtained is 1,037.32.

Therefore, the value of the bond is $1,037.32.

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