Question

D 8.2 Bond price: Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a five- year bond issued by Venice Corp that pays an annual coupon of 5.5 percent. If the current market rate is 7.25 percent, what is the maximum amount Pierre should be willing to pay for this bond?

Answer 1

1)
	Assuming the face value of the bond is $1000 each
	Face Value	$         1,000
	Coupon Rate	6%
	Yield To Maturity	7%
	Redemption Value	$         1,000
	Years To Maturity	5
	Coupon Payment Duration	Annually
Computation Of Bond Price
a	Annual Interest Amount	$         55.00
	($1000*5.5%)
b	PV Annuity Factor for (5 Years,7.25%)	4.07290
c	Present Value Of Annual Interest (a*b)	$       224.01
d	Redemption Value	$   1,000.00
e	PV Factor Of (5 Years,7.25%)	0.70471
g	Present Value Of Redemption Amount (d*e)	$       704.71
f	PriceOf The Bond (c+g)	$       928.72
2)	If the face value is 100 each
	Price would be =$92.87