What is the maximum price you would pay for the bond

Assignment Help Financial Management

Reference no: EM131875236

Things you need to know:

Price = PV of all coupon payments + PV of par value

Par value = face value = maturity value, assume $1000 unless otherwise given Coupon rate = annual coupon/par value

Current yield = annual coupon/price

YTM = discount rate that equates all cash flows to price Relationship between rates and values are as follows:

If coupon rate = current yield = YTM, then price = par

If coupon rate > current yield > YTM, then price > par Þ a premium bond If coupon rate < current yield < YTM, then price < par Þ a discount bond

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Reference no: EM131875236

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