Anonymous
Anonymous asked in Social ScienceEconomics · 1 month ago

Econ Coupon Bond help please!!! x?

A £1,000-par value bond has a coupon rate of 8%. The bond has 15 years left to maturity and the market’s required yield to maturity for similarly rated debt is 5.5%. What is the value of the bond? Should the maturity increase to 20 years, need to calculate the price of the bond. 

Totally confused on how to approach this and structure an answer for it ://

2 Answers

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  • Oiy
    Lv 6
    1 month ago

    It’s a simple question in economics of finance concerning the price of the long time bond. The bond will pay 1000 x .08 =80 for 15 or 20 years.. But the  market rate is 5.5%. So the price of the bond is 80%0.055.

  • GA41
    Lv 7
    1 month ago

    1) A 1000- par value bond paying 8%. will provide $80 interest per year for 15 years.  After 15 years when you redeem the bond, you'll have a one time payment of 1000.

    2) So, what is the present value of $80 over a 15 year period discounted at 5.5%? Using a present value of annuity calculator, the present value is $803.01.

    3) What is the present value of 1000 paid 15 years in the future discounted at 5.5%? Using a present value calculator, the answer is $447.93.

    4) Add the two present values together (803.01 + 447.93 = 1250.94)

    5) The 15-year Bond is worth 1250.94 

    6) a 20 year bond is worth (956.03+342.73= 1298.76)

    7) a 20-year bond at 5.5% is worth 1298.76

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