Question

Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 15 years to maturity, and a coupon rate of 6.5 percent paid annually. If the yield to maturity is 7.6 percent, what is the current price of the bond?

Answer 1

Answer:

€903.50

Explanation:

We use the present value formula to determine the current price of the bond which is shown in the attachment below:

Given that,  

Future value = €1,000

Rate of interest = 7.6%

NPER = 15 years

PMT = €1,000 × 6.5% = €65

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after solving this, the current price of the bond is €903.50