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