As with most bonds, consider a bond with a face value of $1,000. The bond's maturity is 6 years, the coupon rate is 7% paid semiannually, and the discount rate is 18%.
What is the estimated value of this bond today?
Information provided:
Face value= future value= $1,000
Time= 6 years*2= 12 semi-annual periods
Coupon rate= 7%/2= 3.5%
Coupon payment= 0.035*1,000= $35 per semi-annual period
Yield to maturity= 18%/2= 9% per semi-annual period
The value of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
PMT= 35
I/Y= 9
N= 12
Press the CPT key and PV to compute the present value.
The value obtained is 606.16.
Therefore, the value of the bond today is $606.16.
In case of any query, kindly comment on the solution.
As with most bonds, consider a bond with a face value of $1,000. The bond's maturity...
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