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Homework answers / question archive / Fifteen years ago your grandfather purchased for you a 30-year $1,000 bond with a coupon rate of 11 percent
Fifteen years ago your grandfather purchased for you a 30-year $1,000 bond with a coupon rate of 11 percent. You now wish to sell the bond and read that yields are 8 percent. What price should you receive for the bond?
Computation of the price of the bond:-
Price of the bond = Present value of coupon payments + Present value of par value
Coupon payment = $1,000*11% = $110
Remaining life of bond (n) = 30 - 15 = 15 years
Price of the bond = (C*((1-1/(1+r)^n))/r) + (FV/(1+r)^n)
= ($110*((1-1/(1+8%)^15))/8%) + ($1,000/(1+8%)^15)
= ($110*8.5595) + ($1,000*3.1722)
= $941.54 + $315.24
= $1,256.78 Or $1,257
