Question

What is the price of a bond with a 10-yrar maturity, annual coupon rate of 5%, face value $1,000 and a yield of 2.5%? and a risk premuim of 2.5%

Answer 1

Face/Par Value of bond = $1000

Annual Coupon Bond = $1000*5%

= $50

No of years to maturity(n) = 10 years

Bond yield = 2.5%

Risk Premium = 2.50%

YTM =Bond yield + Risk Premium = 2.5% + 2.5% = 5%

Calculating the Market price of Bond:-

Price = $386.087+ $613.913

Price = $1000

So,the current market price of these bonds is $1000