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 €1,000, 15 years to maturity, and a coupon rate of 6.9 percent paid annually. If the yield to maturity is 8 percent, what is the current price of the bond?

Answer 1

€905.85

Step-by-step explanation:

The current price of the bond is its Present Value (PV) this is calculated as follows :

Fv = €1,000

n = 15

Pmt = €1,000 × 6.9% = $69

i = 8%

P/yr = 1

Pv = ?

Using a financial calculator to enter the values as above, the PV is €905.85.

Thus, the current price of the bond is €905.85.