Question

The country inn has bonds outstanding with a par value of $1,000 each and a 6.6 percent coupon. the bonds mature in 7.5 years and pay interest semiannually. what is the current value of each of these bonds if the yield to maturity is 6.8 percent?

Answer 1

Given:

Present Value = Par value of bond = $1000
interest of bond = 6.6 %
n = 7.5 years
Semi-annual.

The current value of the bond is determined by using this formula:

Present Value = (Future Value / (1 +i)^n)

$1000 = FV / (1 + 0.066)^7.5)

Solve for FV

FV = $1,615.02