J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 7%. If the bond has a life of 30 years, pays annual coupons, and the yield to maturity is 6.8%, what is the total present value of the bond's coupon payments?

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Quizplus · Accepted Answer

The total present value of the bond's coupon payments can be calculated using the formula for the present value of an annuity: PV = P * [1 - (1 + r)^-n] / r, where P is the payment (in this case, the annual coupon payment), r is the yield to maturity, and n is the number of periods. Here, P = $1,000 * 7% = $70, r = 6.8% or 0.068, and n = 30. Plugging these values into the formula gives PV = $70 * [1 - (1 + 0.068)^-30] / 0.068, which calculates to approximately $886.37.

J&J Manufacturing Just Issued a Bond with a $1,000 Face