# Valuation of Bonds

1. What is the price today of a 2-year 9% coupon bond that has a par value of $1,000 and a required rate of return of 9%?

2. You have invested in a bond that pays semiannual coupon payments of $40 and has a par value of $1,000. The bond matures in 1 year, and its required rate of return is 10% compounded semiannually. Determine the bond's present value.

3. A $1,000 par value bond with an 8.5% coupon and 2 years until maturity is priced at $1,008.91.

a. What is the bond's yield to maturity using annual coupons and annual compounding and

b. also using semiannual coupons and semiannual compounding?

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Valuation of Bonds

1. What is the price today of a 2-year 9% coupon bond that has a par value of $1,000 and a required rate of return of 9%?

We need to calculate how much the bonds have been issued by using the formula as follows: -

where B is the issued price/current price

C is the coupon payment

r is the current interest rate

n is the period

Assume it is paying annual coupon.

Coupon payment is equal to $1,000 x 9% = 90

B = 90 x [1 - 1 ] + 1,000

(1.09)2 (1.09)2

0.09

B = 1,000

2. You have invested in a bond that pays semiannual coupon payments of $40 and has a par value of ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer what is the price today of a 2-year 9% coupon bond that has a par value of $1,000 and a required rate of return of 9%, what is the bond's present value, and what is the bond's yield to maturity using annual coupons and annual compounding and also using semiannual coupons and semiannual compounding.