Posted by Dee on .
The Carter Company's bond mature in 10 years have a par value of 1,000 and an annual coupon payment of $80. The market interest rate for the bond is 9%. What is the price of these bonds
The coupon rate on the bond, (interest/principal at maturity) = 8%
Since prevailing market interest rate is higher, the bond is worth more than its "par" or maturity value of 1000, assuming it is highly rated or guaranteed.
The formula you need to do the calculation can be found at
(Broken Link Removed)
It is bascially the present value of future interest rates plus the principal at maturity, based upon the actual interst rate in the market for that ten-year term.
I meant to say the bond is worth LESS than 1000 because the coupon rate is less than the market rate. The website I gave you has the correct formula. Use the version based on annual rather than semiannual payments.