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In: Finance

Suppose the YTM is 5% for a 20-year $1000 bond with a 7% coupon rate and...

Suppose the YTM is 5% for a 20-year $1000 bond with a 7% coupon rate and annual coupon payments. Its bond price is $____.

Instruction: Type ONLY your numerical answer in the unit of dollars, NO $ sign, NO comma, and round to one decimal place. E.g., if your answer is $7,001.56, should type ONLY the number 7001.6, NEITHER 7,001.6, $7001.6, $7,001.6, NOR 7002. Otherwise, Blackboard will treat it as a wrong answer.

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Expert Solution

Coupon Rate = 7%
Redemption Value = $1,000
YTM = 5%
Computation of Price of Bond:
Price of Bond = Present Value of all future expected Reciepts
Price of Bond = Present Value of all Coupon payments + Present Value of Redemtion proceeds
Price of Bond = [($ 1,000*7%)* PVAF(5%, 20 years)] + [$1,000 * PV(5%, 20yr)]
Price of Bond = [$ 70* 12.4622] + [$1,000 * 0.3769]
Price of Bond = $ 872.35 + $ 376.89
Price of Bond = 1249.24

jeff jeffy answered 2 years ago
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