Question

A European band has a par value of 1600 Euros a coupon rate of 4 5 percent and a yield to maturity of 3 2 percent . The bond has 19 years to maturity . Coupons are made annually . What is the value of the bond ?

Answer 1

Bond Price​= 1,892.73

Explanation:

Giving the following information:

Par value= 1,600

Cuopon= 1,600*0.045= 72

YTM= 3.2%

Number of years (n)= 19

To calculate the price of the bond, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 72*{[1 - (1.032^-19)] / 0.032} + [1,600 / (1.032^19)]

Bond Price​= 1,013.29 + 879.44

Bond Price​= 1,892.73