Price of bond
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You are evaluating two different $1,000 maturity corporate bonds to buy. The ABC Company bond has a 7 percent annual coupon with 7 years remaining while the XYZ Company bond has a 10 percent annual coupon with 5 years remaining. You could also buy a newly issued 10-year bond from Widget Company of America that has a 12 percent coupon.
What is the current value of the ABC bond? _____________
What is the current value of the XYZ bond? _____________
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Solution Summary
The solution calculates price of bonds.
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Please see the attached file.
Since the newly issued 10-year bond from Widget Company of America has a 12 percent coupon, we can take yield to maturity (YTM)=12%
Calculating Price of bond
To calculate the price of the bond we need to calculate / read from tables the values of
PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
Price of bond= PVIF * Redemption value + PVIFA * interest payment per ...
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