Question

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, 20 years to maturity, and a coupon rate of 6.6 percent paid annually. If the yield to maturity is 77 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 3216.) Price

Answer 1

Answer to Question 1:

Par Value = 1,000

Annual Coupon Rate = 6.6%
Annual Coupon = 6.60% * 1,000
Annual Coupon = 66

Time to Maturity = 20 years
Annual Yield to Maturity = 7.70%

Current Price of Bond = 66 * PVIFA(7.70%, 20) + 1,000 * PVIF(7.70%, 20)
Current Price of Bond = 66 * (1 - (1/1.077)^20) / 0.077 + 1,000 / 1.077^20
Current Price of Bond = 889.55

Answer to Question 2:

Par Value = 100,000

Current Price = 94% * 100,000
Current Price = 94,000

Annual Coupon Rate = 5.30%
Annual Coupon = 5.30% * 100,000
Annual Coupon = 5,300

Time to Maturity = 15 years

Let Annual YTM be i%

94,000 = 5,300 * PVIFA(i%, 15) + 100,000 * PVIF(i%, 15)

Using financial calculator:
N = 15
PV = -94000
PMT = 5300
FV = 100000

I = 5.91%

Annual Yield to Maturity = 5.91%