Question

Calculate the value of a bond that matures in 14 years and has a $1,000 par value. The annual coupon interest rate is 13 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 15 percent. Question 7-2

Answer 1

The value of the bond is computed as shown below:

The coupon payment is computed as follows:

= 13% x $ 1,000

= $ 130

So the value of the bond will be:

= $ 130 / 1.15¹ + $ 130 / 1.15² + $ 130 / 1.15³ + $ 130 / 1.15⁴ + $ 130 / 1.15⁵ + $ 130 / 1.15⁶ + $ 130 / 1.15⁷ + $ 130 / 1.15⁸ + $ 130 / 1.15⁹ + $ 130 / 1.15¹⁰ + $ 130 / 1.15¹¹ + $ 130 / 1.15¹² + $ 130 / 1.15¹³ + $ 130 / 1.15¹⁴ + $ 1,000 / 1.15¹⁴

= $ 885.51 Approximately

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