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A Ford Motor Co. coupon bond has a coupon rate of 7?% and pays annual coupons....

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Finance

A Ford Motor Co. coupon bond has a coupon rate of 7?% and paysannual coupons. The next coupon is due tomorrow and the bondmatures 29 years from tomorrow. The yield on the bond issue is6.45?%. At what price should this bond trade?today, assuming a facevalue of ?$1,000??

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3.7 Ratings (422 Votes)

Par/Face value 1000
Annual Coupon rate 0.07
Annual coupon 70
Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is 6.45% and t is the time period in years.
price of the bond = sum of present values of future cash flows
r 0.0645
t 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
future cash flow 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 1070
present value 70 65.75857 61.77414 58.03113 54.51492 51.21176 48.10875 45.19375 42.45538 39.88293 37.46635 35.1962 33.06359 31.06021 29.17821 27.41025 25.74942 24.18921 22.72354 21.34668 20.05325 18.83819 17.69674 16.62447 15.61716 14.67089 13.78195 12.94688 12.1624 174.6463
sum of present values 1141.353
The bond should trade today at $1141.35.

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Transcribed Image Text

A Ford Motor Co. coupon bond has a coupon rate of 7?% and paysannual coupons. The next coupon is due tomorrow and the bondmatures 29 years from tomorrow. The yield on the bond issue is6.45?%. At what price should this bond trade?today, assuming a facevalue of ?$1,000??

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