Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 9 years to maturity, and a coupon rate of 8 percent paid annually. If the yield to maturity is 9 percent, what is the current price of the bond? |
€940.05
€1,066.47
$893.05
€1,030.00
Annual coupon=1000*8%=80
Hence current value=annual coupon*present value of annuity factor (9%,9) +1000*present value of discounting factor (9%,9)
=80*5.99524689+1000*0.46042778
=940.05(approx)
Note:
1.Present value of annuity=80[1-(1.09)^-9]/0.09
=80*5.99524689
2.present value of discounting factor=1000/1.09^9
=1000*0.46042778
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