In October 2014 you purchase 100 euros of bonds in France that pay a 4.25% coupon every year. If the bond matures in 2018 and the YTM is 0.15%, what is the value of the bond?

The value of the bond is 116.34 Euros

Explanation:

The price of a bond is the present value of all cash flows generated by the bond (i. e. coupons and face value) discounted at the required rate of return

The Bond is a Security that obligates the issuer to make specified payments to the bondholder ...

A Coupon is The interest payments made to the bondholder.

The Coupon rate is theAnnual interest payment, as a percentage of face value.

PV = cpn + cpn + ... + (cpn+par)

(1+r) ∧1 (1+r) ∧2 (1+r) ∧t

PV = 4.25 + 4.25 + 4.25 + 104.25

(1.0015) ∧1 (1.0015) ∧2 (1.0015) ∧3 (1.0015) ∧4

PV = 116.34 Euros