Question
In: Finance
A German bond that pays annual coupons of 4.5%, has a par value of €1,000, and...
A German bond that pays annual coupons of 4.5%, has a par value of €1,000, and a YTM of 3.9%. Assuming there are 19 years until maturity, what is the current price of this bond?
Solutions
Expert Solution
Price of the bond = C x [1-(1+r)-n/r ]+ F/(1+r) n
C = Coupon payment = Par value x coupon rate/annual coupon frequency
= € 1,000 x 0.045 = € 45
r = Yield to maturity = 3.9 % or 0.039
n = Number of periods till maturity = 19
F = Face or Par value = € 1,000
Price of the bond = € 45 x [1-(1+0.039)-19/0.039] + € 1,000 / (1+0.039) 19
= € 45 x [1-(1.039)-19/0.039 ]+ € 1,000 x (1.039) ‑19
= € 45 x [(1-0.483397718593302)/0.039]+ € 1,000 x 0.483397718593302
= € 45 x (0.516602281406698/0.039) + € 483.397718593302
= € 45 x 13.2462123437615 + € 483.397718593302
= € 596.079555469267 + € 483.397718593302
= € 1,079.477274062569 or € 1,079.48
Current price of the bond is € 1,079.48
jeff jeffy answered 1 month agoRelated Solutions
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