Math Problem Statement

A bond that matures in 18 years has a ​$1,000 par value. The annual coupon interest rate is 8 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 15 percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually? Answers only

Solution

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Math Problem Analysis

Mathematical Concepts

Finance
Bond Valuation
Present Value

Formulas

Bond Price Formula: P = C * (1 - (1 + r)^-n) / r + F / (1 + r)^n
Present Value of Coupons: C * (1 - (1 + r)^-n) / r
Present Value of Face Value: F / (1 + r)^n

Theorems

Present Value Theorem
Time Value of Money

Suitable Grade Level

Undergraduate - Finance

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