Company A has issued bonds that have a 10% coupon rate, payable annually

Finance Dec 02, 2020

Company A has issued bonds that have a 10% coupon rate, payable annually. The bonds mature in 5 years, have a face value of 1000$, and YTM of 8.5%. What is the price of the bonds?

Expert Solution

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N

k=1

K =5

Bond Price =∑ [(10*1000/100)/(1 + 8.5/100)^k] + 1000/(1 + 8.5/100)^5

k=1

Bond Price = 1059.11

Using Calculator: press buttons "2ND"+"FV" then assign

PMT = Par value * coupon %=1000*10/(100)

I/Y =8.5

N =5

FV =1000

CPT PV

Using Excel

=PV(rate,nper,pmt,FV,type)

=PV(8.5/(100),5,-10*1000/(100),-1000,)

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