Question

Eighteen years ago a firm issued $1000 par value bonds with a 6% annual coupon rate and a term to maturity of 30 years. Market interest rates have increased since then and par value bonds today would carry an annual coupon rate of 8% (current yield to maturity). What would these bonds sell for today if they made annual coupon payments

Answer 1

Answer:

The bond price annual coupon will be "$ 849.28". The further explanation is given below.

Explanation:

As we know,

The formula to find the Bond price will be:

⇒ $PV(rate,period \ left,-coupon \ payment,-face \ value)$

Now,

Annual coupon bond price will be:

= $PV(8 \ percent,30-18,-1000\times 6 \ percent,-1000)$

= $849.28$ ($)

Semi-annual coupon bond price will be:

= $PV(\frac{8 \ percent}{2},(30-18)\times 2,\frac{-1000\times 6 \ percent}{2},-1000)$

= $847.53$ ($)