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Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere...

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, 10 years to maturity, and a coupon rate of 4.96 percent paid annually. If the yield to maturity is 8.74 percent, what is the current price of the bond? Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16). Enter current price in € but do not type the currency symbol in your answer.

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Answer #1

Par Value = 1,000

Annual Coupon Rate = 4.96%
Annual Coupon = 4.96% * 1,000
Annual Coupon = 49.60

Time to Maturity = 10 years
Annual YTM = 8.74%

Price of Bond = 49.60 * PVIFA(8.74%, 10) + 1,000 * PVIF(8.74%, 10)
Price of Bond = 49.60 * (1 - (1/1.0874)^10) / 0.0874 + 1,000 / 1.0874^10
Price of Bond = 49.60 * 6.49176 + 1,000 * 0.43262
Price of Bond = 754.61

So, current price of bond is 754.61

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