CH.7, #1 Even though most corporate bonds in the United States make coupon payme
ID: 2729153 • Letter: C
Question
CH.7, #1
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, 10 years to maturity, and a coupon rate of 6.8 percent paid annually.
If the yield to maturity is 7.9 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.
If the yield to maturity is 7.9 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.
Explanation / Answer
Calculation of Bond Price Given, Annual Coupan Rate = 6.8% Par Value = 1000/- Maturity Period = 10 Years Yield to Maturity = 7.9% Year Interest Amount/Maturity Value Present Value Factor@7.9% Present Value of Interest/Maturity Value 1 68 0.927 63.02 2 68 0.859 58.41 3 68 0.796 54.13 4 68 0.738 50.17 5 68 0.684 46.49 6 68 0.634 43.09 7 68 0.587 39.94 8 68 0.544 37.01 9 68 0.504 34.30 10 68 0.468 31.79 10 1000 0.433 433.28 Value of Bond 891.63