You have decided to try to make a fortune by buying the bonds of distressed companies. You have found a C-rated bond that has a YTM of 29.6%, a coupon rate of 5.2% with semi-annual coupon payments, a par value of $1000, and 4.5 years remaining until maturity. What is the most you should be willing to pay for this bond?

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18 February, 01:57

You have decided to try to make a fortune by buying the bonds of distressed companies. You have found a C-rated bond that has a YTM of 29.6%, a coupon rate of 5.2% with semi-annual coupon payments, a par value of $1000, and 4.5 years remaining until maturity. What is the most you should be willing to pay for this bond?

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Jonathon · Answer 1

Here, the calculation of the Bond Price using financial calculator is as follows

Variables Financial Calculator Keys Figures

Par Value/Face Value of the Bond [$1,000] = FV = 1,000

Coupon Amount [$1,000 x 5.20% x ½] = PMT = 26

Market Interest Rate or Yield to maturity on the Bond [29.60% x ½] = 1/Y = 14.80

Maturity Period/Time to Maturity [4.50 Years x 2] = N = 9

Bond Price = PV = ?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $413.70.

"Hence, the amount that would be willing to pay for Bond is $413.70"