Calculate the value of a bond that matures in 14 years and has a $1,000 par value. The annual coupon interest rate is 13 percent and the market's required yield to maturity on a comparable-risk bond is 15 percent. Question 7-2
The value of the bond is computed as shown below:
The coupon payment is computed as follows:
= 13% x $ 1,000
= $ 130
So the value of the bond will be:
= $ 130 / 1.151 + $ 130 / 1.152 + $ 130 / 1.153 + $ 130 / 1.154 + $ 130 / 1.155 + $ 130 / 1.156 + $ 130 / 1.157 + $ 130 / 1.158 + $ 130 / 1.159 + $ 130 / 1.1510 + $ 130 / 1.1511 + $ 130 / 1.1512 + $ 130 / 1.1513 + $ 130 / 1.1514 + $ 1,000 / 1.1514
= $ 885.51 Approximately
Feel free to ask in case of any query relating to this question
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