Consider a bond with a coupon rate of 10% and annual coupons. The par value is $1,000, and the bond has 5 years to maturity. The yield to maturity is 9%. What is the value of the bond? (in dollars)
987
1008
1006
918
1087
1020
996
1039
971
956
Price of the bond is calculated by solving the below equation:
This can be verified from the below schedule:
Year | CF | Discount Factor | Discounted CF | ||
0 | $ - | 1/(1+0.09)^0= | 1 | 1*0= | $ - |
1 | $ 100.00 | 1/(1+0.09)^1= | 0.917431193 | 0.91743119266055*100= | $ 91.74 |
2 | $ 100.00 | 1/(1+0.09)^2= | 0.841679993 | 0.84167999326656*100= | $ 84.17 |
3 | $ 100.00 | 1/(1+0.09)^3= | 0.77218348 | 0.772183480061064*100= | $ 77.22 |
4 | $ 100.00 | 1/(1+0.09)^4= | 0.708425211 | 0.708425211065196*100= | $ 70.84 |
5 | $1,100.00 | 1/(1+0.09)^5= | 0.649931386 | 0.649931386298345*1100= | $ 714.92 |
Price= Sum of all Discounted CF | $ 1,038.90 |
Consider a bond with a coupon rate of 10% and annual coupons. The par value is...
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