In: Finance
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 9 years to maturity, and a coupon rate of 6 percent paid annually. If the yield to maturity is 10 percent, what is the current price of the bond?
Price of the bond = PV of the coupon payments + PV of the par value
Price of the bond = €60({1 – [1 / (1 + 0.10)^9]} / 0.10) + €1,000[1 / (1 + 0.10)^9]
Price of the bond = €769.64