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 ? 1000, 25 years to maturity, and a coupon rate of 6.4 percent paid annually. If the yield to maturity is 7.5 percent, what is the current price of the bond?

To calculate the price of the bond, we need to first calculate the coupon payment per period. We assume that the interest rate provided is stated in annual terms. As the bond is an annual bond, the coupon payment, number of periods and r or YTM will be,

Coupon Payment (C) = 0.064 * 1000 = $64

Total periods (n)= 25

r or YTM = 7.5% or 0.075

The formula to calculate the price of the bonds today is attached.

Bond Price = 64 * [( 1 - (1+0.075)^-25) / 0.075] + 1000 / (1+0.075)^25

Bond Price = $877.3835955 rounded off to $877.380

andromache andromache · Answer 2 · 2021-11-25T15:25:24+01:00

andromache andromache

25-11-2021

The current price of the bond is $877.38.

Given that,

The par value of $1,000.
The NPER is 25 years.
The coupon rate is 6.4%, PMT = 6.4% of $1,000 = $64.
The RATE is 7.5%.

Based on the above information, the calculation is to be shown in the attachment.

Therefore we can conclude that The current price of the bond is $877.38.

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