Question

One of IBM's bond issues has an annual coupon rate of 3.6%, a face value of $1,000 and matures in 9 years.

What is the value (or price) of the bond if the required return is 5%?

Answer 1

Calculation of price of bond:
Particulars	Time	PVf @5%	Amount	PV
Cash Flows (Interest)	1.00	0.9524	36.00	34.29
Cash Flows (Interest)	2.00	0.9070	36.00	32.65
Cash Flows (Interest)	3.00	0.8638	36.00	31.10
Cash Flows (Interest)	4.00	0.8227	36.00	29.62
Cash Flows (Interest)	5.00	0.7835	36.00	28.21
Cash Flows (Interest)	6.00	0.7462	36.00	26.86
Cash Flows (Interest)	7.00	0.7107	36.00	25.58
Cash Flows (Interest)	8.00	0.6768	36.00	24.37
Cash Flows (Interest)	9.00	0.6446	36.00	23.21
Cash flows (Maturity Amount)	9.00	0.6446	1,000.00	644.60
Fair Price				900.48
Price of bond is $900.48