SU I Ch 07 Homework KQuestion 5 (of 11) value: 10.00 points Even though most cor

Question

SU I Ch 07 Homework KQuestion 5 (of 11) value: 10.00 points 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 7.7 percent paid annually. If the yield to maturity is 8.8 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price Hints References eBook&Resources; Hint#1 Hint#2 Check my work

Explanation / Answer

a. Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.088)^-15)/0.088 i 8.8% =           8.1567 n 15 b. Present Value of 1 = (1+i)^-n Where, = (1+0.088)^-15 i 8.8% =           0.2822 n 15 c. Annual Coupon Payment = €   1,000.00 x 7.70% = €         77.00 d. Present Value of coupon payments = €         77.00 x      8.1567 = € 628.07 Present Value of Par Value = €   1,000.00 x      0.2822 = € 282.21 Present Value of cash flow from bond € 910.28 Price of bond is the present value of cash flow.So,current price of bond is € 910.28

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