Question

Even though most corporate bonds in the united states make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. suppose a german company issues a bond with a par value of 1000 euros, 23 years to maturity, and a coupon rate of 5.8 percent paid annually.

Required:
If the yield to maturity is 7.5 percent, what is the current price of the bond?

Answer 1

Bond Price​= 816.29

Step-by-step explanation:

Giving the following information:

YTM= 0.075

Coupon= 0.058*1,000= 58

Years to maturity= 23 years

Face value= 1,000

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​= 58*{[1 - (1.075^-23)] / 0.075} + [1,000/(1.075^23)]

Bond Price​= 626.79 + 189.5

Bond Price​= 816.29