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Assume a bond has a $1,000 par value, a coupon rate of 6 percent, annual interest payments, and 7 years to maturity. If the yield on similar bonds is 8 percent, what is the current market value of this bond

Sagot :

Parrain

Based on the value of the bond at par, the coupon rate, and the yield to maturity, the current market value of the bond is $895.87.

What is the current bond value?

This can be found as:

= Present value of bond coupon payments + Present value of par value

Coupon payments:

= 6% x 1,000

= $60

As this payment is constant, it can be treated as an annuity.

Current market value is:

= (Coupon payment x Present value of annuity interest factor, 8%, 7 periods) + ( 1,000 / (( 1 + rate) ^ number of years)

= (60 x 5.2064) + ( 1,000 / 1.08⁷)

= $895.87

Find out more on bond pricing at https://brainly.com/question/26376004.

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