Question

If a 7% (coupon rate), 5-year bond with a par of $1000 is currently worth $960.07, how much will it be worth one year from now if the interest rate remains constant?

Answer 1

YTM of Bond is the Rate at which Pv of cash Inflows are equal to Bond Price today.

Year	CF	PVF @8%	Disc CF
0	$ -960.07	1.0000	$ -960.07
1	$      70.00	0.9259	$    64.81
2	$      70.00	0.8573	$    60.01
3	$      70.00	0.7938	$    55.57
4	$      70.00	0.7350	$    51.45
5	$      70.00	0.6806	$    47.64
5	$ 1,000.00	0.6806	$ 680.58
NPV			$       0.00

Thus YTM is 8%.

Price after 1 Year = PV of Future CFs from it.

Year	CF	PVF @8%	Disc CF
1	$      70.00	0.9259	$    64.81
2	$      70.00	0.8573	$    60.01
3	$      70.00	0.7938	$    55.57
4	$      70.00	0.7350	$    51.45
4	$ 1,000.00	0.7350	$ 735.03
Price of Bond after 1 year			$ 966.88