In: Finance
A & B Corporation issued bonds for 10 years, with face value of $10,000 and a 6% annual coupon rate. What is the current market price of the bond if the market rate is 8%? Assume semi-annual payments.
How would your answer change if the market rate falls to 6%?
K = Nx2 |
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
k=1 |
K =10x2 |
Bond Price =∑ [(6*10000/200)/(1 + 8/200)^k] + 10000/(1 + 8/200)^10x2 |
k=1 |
Bond Price = 8640.97 |
K = Nx2 |
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
k=1 |
K =10x2 |
Bond Price =∑ [(6*10000/200)/(1 + 6/200)^k] + 10000/(1 + 6/200)^10x2 |
k=1 |
Bond Price = 10000 |