Show calculations MoLamb has 8 coupon bonds with a par value

Show calculations

MoLamb has 8% coupon bonds with a par value of $1,000 with 30 years to mature. a. If the yield to maturity is 8.5%, what is the current or present value of this bond?

Solution

Present Value of coupon bond $ 946.27 Working; Year Cash flow Discount factor Present Value 1-30 $             80                10.7468 $            859.75 30 $       1,000 0.0865 $ 86.52 Total $            946.27 Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.085)^-30)/0.085 i 8.50% =       10.7468 n 30 Present Value of 1 = (1+i)^-n = (1+0.085)^-30 =         0.0865 Annual Coupon = Par Value x Annual coupon rate = $       1,000 x 8% = $ 80