Answered

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The $1,000 face value ABC bond has a coupon rate of 10%, with interest paid annually, and matures in 3 years. If the bond is priced to yield 12%, what is the bond's value today

Sagot :

Shahzaibfaraz

Answer:

Bond Price  = $951.9633746 rounded off to $951.96

Explanation:

To calculate the quote/price of the bond today, which is the present value of the bond, we will use the formula for the price of the bond. As the bond is an annual bond, we will use the annual coupon payment,  annual number of periods and annual YTM. The formula to calculate the price of the bonds today is attached.  

Coupon Payment (C) = 1000 * 10% = $100

Total periods remaining (n) = 3

r or YTM = 12%  

 Bond Price = 100 * [( 1 - (1+0.12)^-3) / 0.12]  + 1000 / (1+0.12)^3

Bond Price  = $951.9633746 rounded off to $951.96

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