Question

In: Finance

AEP has a 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond...

AEP has a 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. If the yield to maturity remains at its current rate, what will the price be 8 years from now?
Group of answer choices
$901.78
$842.91
$892.55
$934.46
$953.25

Solutions

Expert Solution

Face value of Bond (FV) = $1,000

Annual coupon on bond (PMT) = $1000 x 8.5% = $85

No. of annual coupons receivable (N) =25

Price of bond (PV) = (-$925)

Yield to maturity of bond = ?

Using financial calculator or RATE function in excel,

Yield to maturity of bond = 9.281%

If Yield to maturity of bond is same after 8 years,

Face value of Bond (FV) = $1,000

Annual coupon on bond (PMT) = $85

No. of annual coupons receivable (N) =17

Yield to maturity of bond = 9.281%

Price of bond (PV) = ?

Using financial calculator or PV function in excel,

Price of bond (PV) = $934.46

Therefore 4th option is correct.

jeff jeffy answered 2 years ago
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