What is the new price of the bonds, given that they now have 19 years to maturity?

February 5th, 2010 | by bonds |
RayRay asked:


A corporation issued 20-year, 7% annual coupon bonds at their par value of $1,000 one year ago. Today the market interest rate on these bonds has dropped to 6%. What is the new price of the bonds, given that they now have 19 years to maturity?

MONTY
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  1. 2 Responses to “What is the new price of the bonds, given that they now have 19 years to maturity?”

  2. By da_zoo_keeper on Feb 5, 2010 | Reply

    RUEBEN

    1063.82 you divide 1000 (face value ) by the reciprocal of 6% ( which is .94) to get the current market price !

  3. By chungsterama on Feb 6, 2010 | Reply

    MAN

    If the yield to maturity is 6%, that would be 3% on a semi-annual basis; then solve for PV based on the following: FV = 1,000 and 38 semi-annual coupons of $35.

    Then the PV or current price of the bond is $1,112.46

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