How to determine bond prices and yields? and Bonding 1

How to determine bond prices and yields?

Bonds issued at face value had a yield to maturity of 7%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. What is the new price of the bond?


Bond best answer:

Answer by Marc
To get an exact answer, it helps to have the redemption value of the bonds. Since they were issued at face value you can assume that the bonds paid an annual interest payment of 7%.

The way to solve this is to use the Present Value calculations to determine the present value of the series of payments.

I'll give you an example.

If the bond has a redemption value of $ 1,000, pays a 7% coupon payment each year, it will sell today (8 years before redemption) for $ 641.01

I calculated this by using the PV function in Excel, with
15% as the annual rate
8 as the number of periods
$ 70 as the annual payment, and
$ 1,000 as the Future Value.

So with a 7% coupon, the bond would sell at 64.104%. Multiply that by the face value of the bond and you will have your answer.

Bond

Bonding 1


Image by Daniel Y. Go
Spent a quiet evening with my youngest son, just bonding.. Quite cool.
Here is my first attempt sketching with crayons. Just a quick sketch with no artistic value but made really fun because of the bonding time with my son. God is good. =)

---

Orignal From: How to determine bond prices and yields? and Bonding 1