Even though most corporate bonds in the United States make coupon payments semia

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, 15 years to maturity, and a coupon rate of 6.5 percent paid annually.

If the yield to maturity is 7.6 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.)

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, 15 years to maturity, and a coupon rate of 6.5 percent paid annually.

Explanation / Answer

y = 7.6% = 7.6/2/100 = 0.038

Coupon amount ( semi annual ) = 1000 * 6.5% * 1/2 = 32.50

Term = 15 years = 30 semi annual periods

Price of the Bond = 32.50 * 1 / 0.038 * ( 1 - 1/1.03830 ) + 1000 / 1.03830

32.50 * 26.3157 * ( 1 - 1/3.06140) + 1000 / 3.06140

32.50 * 26.3157 * ( 1 - 0.3266 ) + 326.64

32.50 * 26.3157 * 0.6734 + 326.64

575.93 + 326.64

$ 902.57

The Current Price of the Bond = $ 902.57

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