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?

Question

Quizplus · Accepted Answer

To calculate the present value of the bond's coupon payments, we need to use the formula:

PV = C x [1 - (1 + r)-n / r] + FV / (1 + r)n

Where:
PV = Present value of the coupon payments
C = Annual coupon payment
r = Yield to maturity
n = Number of years
FV = Face value of the bond

Plugging in the numbers, we get:

PV = 70 x [1 - (1 + 0.068)-30 / 0.068] + 1,000 / (1 + 0.068)30
PV = 886.37

Therefore, the total present value of the bond's coupon payments is $886.37. Option C is the correct choice.

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