Even though most corporate bonds in the United States make c

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 with a par value of €1,000, 15 years to maturity, and a coupon rate of 7.3 percent paid annually. If the yield to maturity is 8.4 percent, what is the current price of the bond?

Solution

Current Price of the Bond = € 908.11

Face Value                    = €1,000

Coupon Amount = €1,000 x 7.3% = €73

Yield to maturity = 8.40%

Maturity Period    = 15 Years

Current Price of the Bond = Present Value of the coupon amount + Present Value of the Face Value

= €73 x (PVIFA 8.40%, 15 Years) + €1,000 x (PVIF 8.40%, 15 Years)

= (€73 x 8.3543277) + (€1,000 x 0.2982364)

= €609.87 + 298.24

= € 908.11