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1 January, 20:16

Your friend barbara has a bond that she would like to sell to you. the bond matures in 10 years, has a face value of $1,000 and a coupon interest rate of 6% (paid annually). if you know that the yield to maturity on similar bonds is 8%, what is the maximum price you would be willing to pay for the bond?

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  1. 1 January, 20:21
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    Given, the current market rate of 8% for a similar bond, a bond with a face value of $1000.00 and paying a coupon rate of 6% annually. The maximum price I should be willing to pay is ($865 selling at a discount)

    Variables:

    C=coupon payment $60

    n=number of years 10

    i = market rate or required yield = 8%

    k = number of coupon payments in 1 yr = 1

    P=value at maturity or par value = 1000
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