Ford Motor Company bonds have 20 years remaining to maturity. Interest is paid annually, they have a $1000 par value, the coupon
interest rate is 8%, and the yield to maturity is 6.125%. What is the bond's market price?
1 answer:
Answer:
Bond Price = $1212.895577 rounded off to $1212.90
Explanation:
To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is an annual bond, the coupon payment, number of periods and annual YTM will be,
Coupon Payment (C) = 1000 * 0.08 = 80
Total periods (n) = 20
r or YTM = 0.06125
The formula to calculate the price of the bonds today is attached.
Bond Price = 80 * [( 1 - (1+0.06125)^-20) / 0.06125] + 1000 / (1+0.06125)^20
Bond Price = $1212.895577 rounded off to $1212.90
You might be interested in