Fifteen years ago your grandfather purchased for you a 30-year $1,000 bond with a coupon rate of 11 percent

Finance Sep 06, 2020

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?

Expert Solution

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

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote