Suppose that you purchased a A rated $5000 annual coupon bond with an 6.8% coupon rate...

Suppose that you purchased a A rated $5000 annual coupon bond with an 6.8% coupon rate and a 18-year maturity at par value. The current rate on 18-year US treasuries is 3%. Two years later, you look in the newspaper, and find that the yield on comparable debt is 7.223%, how much is the bond currently worth?

Solutions

Expert Solution

Computation Of Bond Price

a	Annual Coupon Amount	$ 340.00

b	Present Value Annuity Factor for (16 Years,7.223%)	9.308641
c	Present Value Of Annual Interest (a*b)	$ 3,164.94
d	Redemption Value	$ 5,000.00
e	Present Value Of (16 Years,7.223%)	0.32764
g	Present Value Of Redemption Amount (d*e)	$ 1,638.18
f	Bond price(c+g)	$ 4,803.12

jeff jeffy answered 2 years ago

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