Question

How is the value of a bond determined? What is the value of a 10-year, $1,000 par value bond with a 10% annual coupon if its required rate of return is 10%?

Answer 1

Answer:

The present value of the bond is $1000

Explanation:

The value of a bond equals the present value of its expected future cash flows.

The formula

Present Value Paid at Maturity = Face Value / (Market Rate/ 100) ^ Number Payments

Present Value of Interest Payments = Payment Value * (1 - (Market Rate / 100) ^ -Number Payments) / Number Payments)

Present Value of Bond = Present Value Paid at Maturity + Present Value of Interest Payments