F1 – Calculating current market value of a bond

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August 29, 2016 at 12:49 pm #335959
deepthie
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Hello Sir,

I would really appreciate if you could help me with this.

Could you show me the steps in calculating market value of the bond in this question?

A bond has a coupon rate of 7%. It will repay its face value of $1000 at the end of six years. The market expects this type of bond to have a yield to maturity of 10%. Calculate the current market value for the bond.

Thank you!
December 21, 2017 at 11:29 pm #424399
P
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The current price of the bond would be (Face value – discount )
Thus
$1000-(($1000×0.07)/(1+0.1)^6)
=$1000 – $39.5132
=$960.50 rounded
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