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, 10 years to maturity, and a coupon rate of 6.8 percent paid annually. If the yield to maturity is 7.9 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.) Price Hints eBook & Resources Hint#1 Hint #2

Explanation / Answer

Using financial calculator BA II Plus - Input details:

#

I/Y = R = Rate or yield / frequency of coupon in a year =

           7.900000

PMT = Coupon rate x FV / frequency =

-$68.00

N = Number of years remaining x frequency =

10

FV = Future Value =

-$1,000.00

CPT > PV = Present value of bond =

$925.86

Formula for bond value = |PMT| x ((1-((1+R%)^-N)) / R%) + (|FV|/(1+R%)^N)

$925.86

Formula for bond value = 68 x ((1-((1+7.9%)^-10)) / 7.9%) + (1000/(1+7.9%)^10)    

Formula for bond value = $925.86

Using financial calculator BA II Plus - Input details:

#

I/Y = R = Rate or yield / frequency of coupon in a year =

           7.900000

PMT = Coupon rate x FV / frequency =

-$68.00

N = Number of years remaining x frequency =

10

FV = Future Value =

-$1,000.00

CPT > PV = Present value of bond =

$925.86

Formula for bond value = |PMT| x ((1-((1+R%)^-N)) / R%) + (|FV|/(1+R%)^N)

$925.86

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