Consider an annual coupon bond with a face value of ?$100?, 8 years to? maturity, and a price of ?$77

Finance Aug 12, 2020

Consider an annual coupon bond with a face value of ?$100?, 8 years to? maturity, and a price of ?$77.. The coupon rate on the bond is 7?%. If you can reinvest coupons at a rate of ?1% per? annum, then how much money do you have if you hold the bond to? maturity?

Expert Solution

We can calculate the future value of coupon payment by using the following formula in excel:-

=fv(rate,nper,-pmt,pv)

Here,

FV = Future value of coupon payment

Rate = 1%

Nper = 8 periods

Pmt = Coupon payment = $100*7% = $7

PV = $0

Substituting the values in formula:

= fv(1%,8,-7,0)

= $58

Money have at hold the bond to maturity = Future value of coupon payment + Face value

= $58 + $100

= $158

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