# Estimating price of a coupon paying bond

You are considering purchasing a bond at the end of this year. The bond has a coupon rate of 10.5%, interest payments are made annually, and the bond matures in 20 years. If your required pretax rate of return is 14%.

a. What is the maximum price you would be wiling to pay for a 20-year, 10.5% bond?

b. Assume the bond pays interest annually. Would you purchase the bond if its current market price is $750?

© BrainMass Inc. brainmass.com June 3, 2020, 10:27 pm ad1c9bdddfhttps://brainmass.com/business/bond-valuation/steps-for-estimating-price-coupon-paying-bond-232036

#### Solution Preview

Solution:

a. What is the maximum price you would be wiling to pay for a 20-year, 10.5% bond?

The Fair price of a bond can be found as under:

Value of bond = Present value of annual coupon ...

#### Solution Summary

Solution describes the steps for calculating price estimate of a coupon paying bond.

$2.19