Question

Bond price: Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Venice Corp. that pays an annual coupon rate of 7.4 percent. If the current market rate is 7.25 percent, what is the maximum amount Pierre should be willing to pay for this bond? Round your answer to 2 decimal places.

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =5

Bond Price =∑ [(7.4*1000/100)/(1 + 7.25/100)^k]     +   1000/(1 + 7.25/100)^5

k=1

Bond Price = 1006.11