If you purchased a ten-year corporate bond, $1,000 par value, with a 5 percent coupon, and...
If you purchased a ten-year corporate bond, $1,000 par value, with a 5 percent coupon, and suddenly the rate on comparable bonds are at 7 percent, what is the price of the bond today? Show all work.
Homework Answers
Par Value = $1,000
Annual Coupon Rate = 5.00%
Semiannual Coupon Rate = 2.50%
Semiannual Coupon = 2.50% * $1,000
Semiannual Coupon = $25
Time to Maturity = 10 years
Semiannual Period = 20
Annual Interest Rate = 7.00%
Semiannual Interest Rate = 3.50%
Price of Bond = $25 * PVIFA(3.50%, 20) + $1,000 * PVIF(3.50%,
20)
Price of Bond = $25 * (1 - (1/1.035)^20) / 0.035 + $1,000 *
(1/1.035)^20
Price of Bond = $25 * 14.212403 + $1,000 * 0.502566
Price of Bond = $857.88
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