A 5- year bond interest annually

Finance Aug 30, 2020

A 5- year bond interest annually. The par value is 1,000 and the coupon rate equals 7%. If the market's required returned on the bond is 8%, then what is the bond's market price?

Expert Solution

We can calculate the market price of the bond by using the following formula in excel:-

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

Here,

PV = Market price of the bond

Rate = 8%

Nper = 5 periods

Pmt = Coupon payment = $1,000*7% = $70

FV = $1,000

Substituting the values in formula:

= -pv(8%,5,70,1000)

= $960.07

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