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mariarad [96]
3 years ago
15

A 5% coupon, 18-year annual bond has a yield to maturity of 6.2%. Assuming the par value is $1,000 and the YTM does not change o

ver the next year, what will the price of the bond be today
Business
1 answer:
GenaCL600 [577]3 years ago
3 0

Answer:

Price of Bond=$871.997

Explanation:

<em>The price of a bond is the present value (PV) of the future cash inflows expected from the bond discounted using the yield to maturity.</em>

<em>Price of Bond = PV of interest payment + PV of redemption value</em>

PV of interest payment

interest payment = 5%× 1,000 = $50

PV = A × (1- 1+r)^(-n)/r

r- 6.2%, n- 18, A- 50

PV = 50 × (1 -1.062^(-18))/0.062=533.341

PV of redemption

PV = FV × (1+r)^(-n)

PV = 1,000 × 1.062^(-18)= 338.655

Price of the stock = 533.3419 + 338.655

Price of Bond=$871.997

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