A bond that offers an annual coupon rate of 9%, with interest paid annually, has a...

A bond that offers an annual coupon rate of 9%, with interest paid annually, has a face value of $1,000. The difference between its yield to maturity and coupon rate is 4%. The bond matures in 8 years. What is the bond’s price?

Solutions

Expert Solution

Price of the Bond

· The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.

· The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

· Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figure

Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$1,000 x 9.00%]	PMT	90
Market Interest Rate or Yield to maturity on the Bond [9.00% + 4.00%]	1/Y	13
Maturity Period/Time to Maturity [8 Years]	N	8
Bond Price/Current market price of the Bond	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $808.05.

Hence, the Price of the Bond will be $808.05.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A) A bond offers a coupon rate of 9%, paid annually, and has a maturity of...

A) A bond offers a coupon rate of 9%, paid annually, and has a maturity of 14 years. The current market yield is 10%. Face value is $1,000. If market conditions remain unchanged, what should the price of the bond be in 1 year? Assume the market yield remains unchanged. B) A bond currently trades at a price of $852.72 in the market. The bond offers a coupon rate of 7%, paid annually, and has a maturity of 15 years....

A bond offers a coupon rate of 6%, paid annually, and has a maturity of 9...

A bond offers a coupon rate of 6%, paid annually, and has a maturity of 9 years. The current market yield is 14%. If market conditions remain unchanged, what should be the Capital Gains Yield of the bond?

A) A bond offers a coupon rate of 12%, paid annually, and has a maturity of...

A) A bond offers a coupon rate of 12%, paid annually, and has a maturity of 16 years. The current market yield is 14%. Face value is $1,000. If market conditions remain unchanged, what should be the Capital Gains Yield of the bond? B) You own a bond with the following features: face value of $1000, coupon rate of 5% (semiannual compounding), and 15 years to maturity. The bond has a current price of $1,115. The bond is callable after...

A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures...

A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures in seven years. The price of this bond per 100 of par value is 112.54, what is its yield-to-maturity?

5. A bond offers a coupon rate of 7%, paid annually, and has a maturity of...

5. A bond offers a coupon rate of 7%, paid annually, and has a maturity of 18 years. If the current market yield is 9% (discount rate), what should be the price of this bond? 6. A bond offers a coupon rate of 10%, paid semiannually, and has a maturity of 6 years. If the current market yield is 6%, what should be the price of this bond?

A bond offers a coupon rate of 3%, paid annually, and has a maturity of 19...

A bond offers a coupon rate of 3%, paid annually, and has a maturity of 19 years. Face value is $1,000. If the current market yield is 11% (discount rate), what should be the price of this bond? Enter your answer in dollars, without the dollar sign ('$'), and rounded to the nearest cent (2 decimals).

A bond offers a coupon rate of 6%, paid annually, and has a maturity of 6...

A bond offers a coupon rate of 6%, paid annually, and has a maturity of 6 years. If the current market yield is 7% (discount rate), what should be the price of this bond? Enter your answer in dollars, without the dollar sign ('$'), and rounded to the nearest cent (2 decimals).

A bond offers a coupon rate of 4%, paid annually, and has a maturity of 5...

A bond offers a coupon rate of 4%, paid annually, and has a maturity of 5 years. The current market yield is 9%. If market conditions remain unchanged, what should be the Capital Gains Yield of the bond?

4. A bond offers a coupon rate of 6%, paid annually, and has a maturity of...

4. A bond offers a coupon rate of 6%, paid annually, and has a maturity of 11 years. The current market yield is 3%. If market conditions remain unchanged, what should the price of the bond be in 1 year?

A bond offers a coupon rate of 7%, paid annually, and has a maturity of 10...

A bond offers a coupon rate of 7%, paid annually, and has a maturity of 10 years. The current market yield is 9%. If market conditions remain unchanged, what should be the Capital Gains Yield of the bond? Enter your answer as a percentage, without the percentage sign ('%'), and rounded to 2 decimals. Use the minus sign ('-') if the yield is negative.

Subjects