What is the current value of a $1,000 bond with a 6% annual coupon rate (paid...
What is the current value of a $1,000 bond with a 6% annual coupon rate (paid semi-annually) that matures in 11 years if the appropriate stated annual discount rate is 12%.
Homework Answers
Value of bond is equal to the present value of all future coupon payments and the principal amount
Semi annual discount rate = 12%/2 = 6%
Number of semi annual periods = 11*2 = 22 periods
Hence, value = 1000*6%*1/2*PVAF(6%, 22 periods) + 1,000*PVF(6%, 22 periods)
= 30*12.0416 +1,000*0.2775
=$638.748
i.e. $638.75
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