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Eighteen years ago a firm issued $1000 par value bonds with a 6% annual coupon rate and a term to maturity of 30 years. Market interest rates have increased since then and par value bonds today would carry an annual coupon rate of 8% (current yield to maturity). What would these bonds sell for today if they made annual coupon payments

Respuesta :

Answer:

The bond price annual coupon will be "$ 849.28". The further explanation is given below.

Explanation:

As we know,

The formula to find the Bond price will be:

⇒ [tex]PV(rate,period \ left,-coupon \ payment,-face \ value)[/tex]

Now,

Annual coupon bond price will be:

= [tex]PV(8 \ percent,30-18,-1000\times 6 \ percent,-1000)[/tex]

= [tex]849.28[/tex] ($)

Semi-annual coupon bond price will be:

= [tex]PV(\frac{8 \ percent}{2},(30-18)\times 2,\frac{-1000\times 6 \ percent}{2},-1000)[/tex]

= [tex]847.53[/tex] ($)

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