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Bond Value : Solution set

$1,000 par value bond outstanding that pays 9 percent annual interest. The current yield to maturity on such bonds in the market is 12 percent. Compute the price of the bonds for these maturity dates:

30 years
15 years
1 year

Solution Preview

$1,000 par value bond outstanding that pays 9 percent annual
interest. The current yield to maturity on such bonds in the market is 12 percent.
Compute the price of the bonds for these maturity dates:
30 years
15 years
1 year

To calculate the price of the bond we need to calculate / read from tables the values of
PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
PVIF( n, r%)= =1/(1+r%)^n

No of years to maturity= 30

Price of bond
Coupon ...

Solution Summary

The solution calculates price of bonds for different maturity dates, given annual interest and the current yield to maturity.

$2.19