Question

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?

Answer 1

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