Question

In: Accounting

What is the current value of a $1,000 bond with a 7% annual coupon rate (paid...


What is the current value of a $1,000 bond with a 7% annual coupon rate (paid semi-annually) that matures in 7 years if the appropriate discount rate is 11%

Solutions

Expert Solution

Current Value of the Bond

The Current Value 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

Figures

Face Value [-$1,000]

FV

-1,000

Coupon Amount [$1,000 x 7.00% x ½]

PMT

35

Market Interest Rate or Required Rate of Return [11.00% x ½]

1/Y

5.50

Time to Maturity [7 Years x 2]

N

14

Bond Price

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 = $808.21.

“Hence, the Current Value of the Bond will be $808.21“

ekkarill92 answered 2 months ago
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