What is the market value of a bond with 20 years left to maturity, a coupon...

What is the market value of a bond with 20 years left to maturity, a coupon payment of $35 every 6 months, and a $1,000 face value if the yield to maturity is 5%?

Solutions

Expert Solution

The price of the bond can be calculated as follows:

Price of bond = Coupon * (1 - (1 + R)^-N)/R + FV/(1+R)^N

where Coupon = 35

R = 5%/2 = 2.50%

FV = 1000

N = 20 * 2 = 40

Price = 35*((1-(1+0.025)^-40)/0.025+1000/(1+0.025)^40

= 35*25.102775 + 372.43

= 1251.03

jeff jeffy answered 2 years ago

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