Question

A corporate bond matures in 17 years, pays an annual coupon rate of 5%, has a par value of $1,000 and a required rate of return of 5.90%. a. What is the current market value of this bond? b. In one year, would you expect the bond price to increase or decrease from its current market value?

Please don't use excel. explain normally. Thank you!

Answer 1

Paticulars	Amount
PV of coupon payments = 1000*5%*10.55303	527.65
PV of maturity price =1000*.37737	377.37
Market value of bond = 527.65 + 377.37	905.02
b) In one year, bond priceis expected to increase from its current market value
Time	PVF at 5.90%
1.00	0.94429
2.00	0.89168
3.00	0.84200
4.00	0.79509
5.00	0.75079
6.00	0.70896
7.00	0.66947
8.00	0.63217
9.00	0.59695
10.00	0.56369
11.00	0.53229
12.00	0.50263
13.00	0.47463
14.00	0.44818
15.00	0.42321
16.00	0.39964
17.00	0.37737
PVf for 17 Years	10.55303