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    24nascar24's Avatar
    24nascar24 Posts: 1, Reputation: 1
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    #1

    Sep 21, 2008, 05:19 PM
    Price of bonds
    A company has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is 7%.
    manik chand dey's Avatar
    manik chand dey Posts: 63, Reputation: 2
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    #2

    Oct 3, 2008, 03:46 AM
    Par value is $1000
    Coupon rate is 8 % that is 8% on 1000= $80
    Maturity period is 25 years
    Yield to maturity is 7%, which is nothing but the interest rate by which the present values of all the future cash flows are equal to the bond's price.

    Hence bond price is equal to

    80*__1-1/(1+7%)^25________ + 1000*1/(1+7%)^25
    7%
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