ABC Company Bonds are trading on the open market. Currently the market yield rate or YTM is 6.5%. The coupon rate on the ABC Bonds is at 6.25%. These bonds mature in 20 years. What would be the price quote of these bonds

Question

Ariella

Business

24 December, 07:17

ABC Company Bonds are trading on the open market. Currently the market yield rate or YTM is 6.5%. The coupon rate on the ABC Bonds is at 6.25%. These bonds mature in 20 years. What would be the price quote of these bonds

+5

Answers (1)

Know the Answer?

Capone · Answer 1

The price quote of the bond is $972.45

Explanation:

The price of the bond can be computed using the pv value formula in excel which is = -pv (rate, nper, pmt, fv)

rate is the yield to maturity of 6.5%

nper is the number of coupon interest payment of the bond which is 20

pmt is the annual interest payment of the bond i. e $1000*6.25%=$62.5

The fv is the default face value of a bond at $1000

=-pv (6.5%,20,62.5,1000)

pv=$972.45

The bonds would have a price quote of $972.45

Obviously the bonds would be issued at discount as yield is higher than coupon rate