A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate....

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A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity.

Interest rates and bond prices (face value Is $1,000 and annual coupon rate Is 12%) Table 16-2 в Н Rate in the Market (%)–Ann

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Answer 1

Answer #1

a)	Present value of interest payments
	Amount of interest		1000*12%	120
	P.v value @ 8% for 15 years			8.559

	Present value			120*8.559
				1027.08

	Present value of principal value at maturity
	Principal value			1000
	Pv value of 8% at 15th year			0.315

	Present value			1000*0.315
				315

	Current price of bond		=	1027.08+315
				1342.08

b)	Purchase value	=	1050
	Current price of bond	=	1342.08

	Her profit	=	1342.08-1050
			292.08

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Answer 2

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