Question

g You purchased a 20-year bond at par ($1,000) issued 5 years ago, that has an annual coupon of 7%, but rates in the market place for comparable issues have fallen to 4.5% today. If you needed to sell some of these bonds to raise some capital, what would their sale price per bond be today?

Answer 1

$1,268.49

Step-by-step explanation:

This coupon -paying bond was bought 5 years ago , so find time-to maturity as of today;

Time to maturity of the bond as of today = 20-5 = 15 years

Using a financial calculator, input the following to calculate price;

Time to maturity; N = 15

Face value; FV = 1,000

Interest rate; I/Y = 4.5%

Coupon payment; PMT = 7%*1000 = 70

then compute present value ; CPT PV = 1,268.49

Therefore, the bond would sell at $1,268.49