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A 3-year bond with 10% coupon rate and $1,000 face value yields 8% yield to maturity. Assuming annual coupon payment, calculate the price of the bond.
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11 votes
11 votes
A 3-year bond with 10% coupon rate and $1,000 face value yields 8% yield to maturity. Assuming annual coupon payment, calculate the price of the bond.

User LBugnion
by
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1 Answer

21 votes
21 votes

Answer: $1051.51

Step-by-step explanation:

Coupon rate = 10%

Face value = $1,000

Yield to maturity = 8%

Annual coupon will be:

= Face value × Coupon rate

= 1000 × 10%

= 100

Therefore, the price of bond will be:

= Annual coupon × Present value of annuity factor + $1000 × Present value of the discounting factor

= (100 × 2.5771) + (1000*0.7938)

= 257.71 + 793.8

= $1051.51

The price of the bond is $1051.51

User Sanal S
by
3.3k points
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