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Determining the Bond Valuation

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Question: Leggio Corporation issued 20-year, 7% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds has dropped to 6%. What is the new price of the bonds, given that they now have 19 years to maturity?

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Solution Summary

In 90 words, this solution describes the steps required in finding the price of a coupon paying bond if interest rates fall after the time of issue. All calculations required are included.

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Solution:

Years left to maturity = n=19
Annual coupon payments = 1000*7/100=$70
Interest rate = 6%

New Price of Bond = Present Value of all coupon ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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