Question

Clear BIU Paste . EEG Merge - - E15 F G Join selected cells. 1 Homework 6 - Bond Valuation 2 13 4 Suppose Hyatt issues a bond with a par value of $1,000, 25 years to maturity and a coupon rate of 8% paid annually. If YTM is 6.4%, what is the current price of the bond? 6 8 9 10 Bond Price = PV(coupon) + PV(face value) - couponPVAIF + $1,000 PVIE PVAIF (6.4%, 25, -1) = 12.3116 PVIF (6.4%, 25, 0,-1) = 0.2121 Each coupon = $1,000 8% - $80 12 13 Bond Price coupon . PVAIF + $1,000 "PVIF 15 16 17 18 19 20 22 NNNNNNN

Answer 1

Given coupon Face Value Maturity YTM 8% 1000 25 years 6.4% Solution Bond Price = PV (Coupon) + PV (Face Value) = Coupon X PVAF + FV X PVF We know that, PVAF (Present value annuity factor) = (1+r)^n-1 rX(1+r)^n (1/(1+r)^n PVF (Present Value Factor) = where ris YTM and n is Number of year Hence using above formula we get, PVAF (8%,25) = 12.312 PVF (8%,25) = 0.212 Coupon = FV X Coupon rate = 1000 X 8% 80 + 1000 Hence using above mentioned formula of bond price, Bond Price = 80 X 12.312 984.92 = 1196.98 X 212.06 0.212 + Hence, Current Bond price is $ 1196.98