Question

1. Calculate the current price of a $1,000 par value bond that has a coupon rate of 8 percent, pays coupon interest annually, has 17 years remaining to maturity, and has a current yield to maturity (discount rate) of 12 percent. (Round your answer to 2 decimal places and record without dollar sign or commas).

2. Calculate the current price of a $1,000 par value bond that has a coupon rate of 15 percent, pays coupon interest annually, has 15 years remaining to maturity, and has a current yield to maturity (discount rate) of 5 percent. (Round your answer to 2 decimal places and record without dollar sign or commas).

Answer 1

1.Information provided:

Face value= future value= $1,000

Time= 17 years

Yield to maturity= 12%

Coupon rate= 8%

Coupon payment= 0.08*1,000= $80

The current price of the bond is computed by calculating the present value.

The below has to be entered in a financial calculator to compute the present value:

FV= 1,000

N= 17

I/Y= 12

PMT= 80

Press the CPT key and PV to compute the present value.

The value obtained is 715.21.

Therefore, the current price of the bond is $715.21.

2. Information provided:

Face value= future value= $1,000

Time= 15 years

Yield to maturity= 5%

Coupon rate= 15%

Coupon payment= 0.15*1,000= $150

The current price of the bond is computed by calculating the present value.

The below has to be entered in a financial calculator to compute the present value:

FV= 1,000

N= 15

I/Y= 5

PMT= 150

Press the CPT key and PV to compute the present value.

The value obtained is 2,037.97.

Therefore, the current price of the bond is $2,037.97.

In case of any query, kindly comment on the solution.