Ask Question
4 August, 16:54

A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 8.6%, and sells for $1,140. Interest is paid annually. (Assume a face value of $1,000 and annual coupon payments.) a. If the bond has a yield to maturity of 9.4% 1 year from now, what will its price be at that time?

+1
Answers (1)
  1. 4 August, 17:05
    0
    Price of bond=948.8583731

    Explanation:

    The value of the bond is the present value (PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).

    Value of Bond = PV of interest + PV of RV

    Semi-annual interest = 8.6% * 1,000 * 1/2 = 43

    Semi-annual yield = 9.4%/2=4.7 %

    PV of interest payment

    PV = A (1 - (1+r) ^ (-n)) / r

    A - 43, r-0.047, n - 20

    = 43 * (1 - (1.047) ^ (-10) / 0.047)

    = 549.7724893

    PV of redemption Value

    PV = F * (1+r) ^ (-n)

    F-1000, r-0.047, n - 20

    PV = 1,000 * 1.047^ (-20)

    PV = 399.0858837

    Price of Bond

    549.772 + 399.085

    =948.8583731
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 8.6%, and sells for $1,140. Interest is paid ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers