Question

What is the cash flow of a 10-year bond that pays
coupon interest semiannually, has a coupon rate
of 7%, and has a par value of $100,000?

Answer 1

	Step 1 : Calculation of Semi Annual Coupon Payments
	Par value of the bond issued is   =			$1,00,000
	Annual Coupon %			7.00%
	Annual Coupon Amount			$7,000
	Semi Annual Coupon Amount			$3,500
	Step 2: Calculate number of years to Maturity
	Number of years to maturity = 10 years
	Interest is paid semi annyally so total period = 10 Years * 2 = 20 Periods
	Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds
	Period	Interest	Amount (In Million)
	1	Interest	$3,500
	2	Interest	$3,500
	3	Interest	$3,500
	4	Interest	$3,500
	5	Interest	$3,500
	6	Interest	$3,500
	7	Interest	$3,500
	8	Interest	$3,500
	9	Interest	$3,500
	10	Interest	$3,500
	11	Interest	$3,500
	12	Interest	$3,500
	13	Interest	$3,500
	14	Interest	$3,500
	15	Interest	$3,500
	16	Interest	$3,500
	17	Interest	$3,500
	18	Interest	$3,500
	19	Interest	$3,500
	20	Interest	$3,500
	20	Bonds Par Value	$1,00,000
		Total Cash Flow	$1,70,000
		Answer = Total cash Flow = $ 170,000