Question

A bond that matures in 8 years has a par value of $1,000 and an annual coupon payment of $70; its market interest rate is 9%. What is its price

Answer 1

Answer:

$889.30

Explanation:

The price of the Bond is its Present Value and is calculated as follows :

N = 8

FV = $1,000

Pmt = $70

P/yr = 1

YTM = 9%

PV = ?

Using a Financial calculator to enter the values as above, the  price of the Bond (PV) is $889.30

Answer 2

The price of the bond at market interest rate 9% is $889.30.

Here, we are going to employ the use of Present Value Function in the Spreadsheet to help us determine the Price of the bond.

Given Information

N = 8

FV = $1,000

PMT = $70

P/yr = 1

YTM = 9%

Price of the Bond = ?

Price of the Bond = PV(YTM, N, -PMT, -FV)

Price of the Bond = PV(9%, 1, -70, -1000)

Price of the Bond =  $889.30

Therefore, the price of the bond at market interest rate 9% is $889.30.

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