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A 21-year German government bond (bund) has a face value of €550 and a coupon rate of 4% paid annually. Assume that the interest rate (in euros) is equal to 7.10% per year. What is the bond's PV? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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hyderali230

Answer:

Bond's present value is ∈ 366.73

Explanation:

Face Value = F = ∈ 550

Coupon rate = C = 4%

Present value of interest payment = C x F x [ ( ( 1 - ( 1 + r )^t ) / r ] + [ F / ( 1 + r )^t

Present value of interest payment = 4% x ∈ 550 x [ ( ( 1 - ( 1 + 0.071 )^-21 ) / 0.071 ] + [ 550 / ( 1 + 0.071 )^21

Present value of interest payment = ∈ 236.48 + ∈ 130.25

Present value of interest payment = ∈ 366.73

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