Question

A bond that matured in 20 years has a coupon rate of 12.00% and pays interest semiannually.What is the value of this bond today if similar bonds have a 14.00% yield to maturity ?

Answer 1

A B C 1 2 Coupon rate (coupon rate/2) 6.00% per half year 3 Face value of bond, FV $ 1,000 4 No. of periods ,nper (No. of year *2) 40 half years 5 YTM,rate (rate/2) 7.00% per half year 6 (face value*coupon rate) 60.00 7 8 Using Excel function for Current price- 9 PV=PV(rate, nper,pmt, fv, type) 10 $ 866.68 (round to 2 decimals) 11 Hence price of bond is $ 866.68

Calculations-

A B 1 =129/2 per half year 1000 =20*2 half years per half year 2 Coupon rate (coupon rate/2) 3 Face value of bond, FV 4 No. of periods ,nper (No. of year *2) 5 YTM,rate (rate/2) 6 (face value*coupon rate) 7 8 Using Excel function for Current price- 9 PV=PV(rate,nper,pmt,fv, type) 10 --PV(B5,B4,B6,B3,0) 11 Hence price of bond is $ 866.68 =14%/2 =B2*B3 (round to 2 decimals)

Here,
Fv is the future value of bond
rate is the periodic interest rate
nper is no. of periods
pmt is the periodic payments
Pv is the present value of bond
type = 0 if the amount is paid at the end of the year ,1 if it is paid at the beginning.

As no method was mentioned I have solved the problem using excel function.Please upvote if the answer is helpful.In case of doubt,do comment.Thanks.