question archive A 4 year £50 par value 8% annual coupon bond is selling to yield at 11%
A 4 year £50 par value 8% annual coupon bond is selling to yield at 11%
Subject:FinancePrice:2.86 Bought8
A 4 year £50 par value 8% annual coupon bond is selling to yield at 11%. What is the current value of this bond? a. The current value of the bond is 45.35 O b. The current value of the bond is 59.46 c. The current value of the bond is 46.33 O d. The current value of the bond is 75.90 .
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The bond price is the sum of all its future cash flows+ present value of its redemption value
Future cashflow are the coupons that we receive on a bond
the coupon is calculated on par value I,e 50
so coupon =50*8%=4
| year | cashflow (A) | present value factor (B) | A*B |
| 1 | 4 | =1/(1.11)^1= 0.901 | 3.604 |
| 2 | 4 | =1/(1.11)^2= 0.812 | 3.246 |
| 3 | 4 | =1/(1.11)^3= 0.731 | 2.925 |
| 4 | 54=4+remption value 50 | =1/(1.11)^5= 0.659 | 35.571 |
| 45.346 |
so the current price of the bond =45.35 option A is correct
