the value of a bond

[Sxin]

Calculate the value of a bond with a par value of $1,000, an annual coupon interest rate of 9%, with 5 years to maturity, given that the required return for other similar bonds is 7%.

Can somebody please explain how to complete this? Especially what is this "given that the required return for other similar bonds is 7%."

 

[Triest123]

Calculate the value of a bond with a par value of $1,000, an annual coupon interest rate of 9%, with 5 years to maturity, given that the required return for other similar bonds is 7%.

Can somebody please explain how to complete this? Especially what is this "given that the required return for other similar bonds is 7%."

=> The required rate of return represent the borrowing costs for buying the bond, which is the discount rate of the present value of the bond.

The coupon interest rate is the interest earned from the bond.

The Value of the bond = the total present value of the interest earned from the bond (year 1 to 5)
+ the present value of the face value of the bond in year 5