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A bond has a coupon rate of 6% per annum and will repay its face value of $100 on its maturity in four years time. Investors expect a return of 4% per annum. The annual interest has just been paid for the current year.
Calculate the market value of the bond at today’s date
Current market value is present value of future receipts
So,
1. Present value of repayment of $100 discounted @0.855 = 85.5
2. Present value of interest $6 p.a discounted @3.630 = 21.78Total PV = 107.28
The current market value of the bond is $107.28
accastudent001: What you have written is perfectly correct 🙂
However I am writing because I must ask you to change your picture. The ACCA get very angry when anyone uses their logo 🙁
Thanks for the comment on answer sir.
Regarding profile picture, I have changed it right away. Thanks for pointing it out.
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