Even though most corporate bonds in the United States make coupon payments semia
ID: 2384541 • Letter: E
Question
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon rate of 7 percent paid annually.
If the yield to maturity is 8.1 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
If the yield to maturity is 8.1 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Answer:Calculation of the current price of the bond:
N = 20
I = 8.1
PMT = 70
FV = 1000
PV=$70*PVIFA(8.1%,20)+1000*PVIF(8.1%,20)
=€ 70*9.7455+1000*0.2106
=€ 892.785
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