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Delta Corporation has a bond issue outstanding with an annual coupon rate of 7% and 20 years remaining until maturity. The par value of the bond is $1,000. Determine the current value of the bond if present market conditions justify a 14% nominal annual required rate of return.

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Answer:

Bond Price​= $536.38

Explanation:

Giving the following information:

Face value= $1,000

Number of periods= 20

Cupon rate= 0.07

YTM= 0.14

To calculate the price of the bond, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 70*{[1 - (1.14^-20)] / 0.14} + [1,000/1.14^20)

Bond Price​= 463.62 + 72.76

Bond Price​= $536.38

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