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What is the price of a bond with a coupon rate of 8%, payable annually, a face value of $1000, 9 years to maturity, and a yie

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Answer #1

Annual coupon=1000*8%=80

Hence price of bond=Annual coupon*Present value of annuity factor(8.9%,9)+$1000*Present value of discounting factor(8.9%,9)

=80*6.01969691+1000*0.464246975

=$945.82(Approx).

NOTE:

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=80[1-(1.089)^-9]/0.089

=80*6.01969691

2.Present value of discounting factor=1000/1.089^9

=1000*0.464246975

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