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Determine the price of the security: A 20-year corporate bond that Bennett purchased five years ago when it was issued f...

Determine the price of the security:

A 20-year corporate bond that Bennett purchased five years ago when it was issued for $986.20. The bond has a coupon rate of 3.7% and a yield to maturity today that reflect its AA-rating of 3.2%.

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Answer #1

Assuming face value to be $1000

Coupon = 3.7% of 1000 = 37

Price = Coupon * [1 - 1 / (1 + r)n] / r + FV / (1 + r)n

Price = 37 * [1 - 1 / (1 + 0.032)15] / 0.032 + 1000 / (1 + 0.032)15

Price = 37 * [1 - 0.623454] / 0.032 + 623.454179

Price = 37 * 11.767063 + 623.454179

Price = $1,058.84

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