Question

What is the price of a bond with the following features?

8 years to maturity, face value of $1000, coupon rate of 3% (annual coupons) and yield to maturity (discount rate) of 9.6%.

Answer 1

The solution is as follows:

We can solve this question using financial Calculator. CMPD Set : End N = Years to Maturity. 17. - fx bected Return of Investor / Market Yield PV = fair price | Current Market Price . PMT= face Value X Coupon / fv = face value. Nown CMPD Set: End n=8 I%= 9.6 PV: SOLVE - 642.7085159 PMT - 1000 x 34% - 30 FV = 1000 .. The price of a bond is $642.71 (rounded off to two nearest decimal places).

We can ako calculate the price ofabond using below mentioned formulai PD/C_tattoo ( Hi (1+i)2 (+i)n) (1+i)n where, (= Coupon payment in yield to maturity M: Value at Maturity i.e. face Value. No Number of payments P = Price of Bond ...P= 30 + 30 +30 + 30 (1:096) (1.096)2 (1.09693 [1.09674 + 30 (1.09678 + 30 + 30+30 (1.096)5 (1.096) (1.096) + 1000 (1.096)

= 27.377 24.97€ 22.79 +20.797 18.97 7 7:31+ 15.797 14.41+ 480-30 = 642.7 ... The price of a bond is $64207 Copprox).