value 100 points Problem 73 Valuing Bonds LO2 Even though mo

value: 1.00 points Problem 7-3 Valuing Bonds LO2] Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments, Suppose a German company issues a bond witha par value of 1,000, 20 years to maturity and a coupon rate of 6 6 percent paid annually If the yield to maturity is 7.7 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) Price Hints References eBook & Resources ilAddendumiAme nd pd pizza prolélem ho

Solution

Price of bond

€ 889.55

Working:

€ 889.55 Working: Price of bond is the present value of cash flowa from bond. Cash flow Discount factor Present Value Present Value of coupon interest €               66             10.0413 €            662.72 Present value of Par Value €         1,000                0.2268 €            226.82 Current Price of Bond €            889.55 Working: Present value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.077)^-20)/0.077 i 7.70% =        10.0413 n 20 Present value of 1 = (1+i)^-n = (1+0.077)^-20 =           0.2268 Par Value = 1000 Annual coupon = 1000 x 6.60% = 66