Question

A bond was issued three years ago at a price of $946 with a maturity of six years, a yield-to-maturity (YTM) of 6.25% compounded semi-annually, and a face value of $1,000 with semi-annualy coupons. What is the price of this bond today immediately after the receipt of today's coupon if the YTM has fallen to 5.00% compounded semi-annually?

Answer 1

B10 fic =PMT(B6,B4,B7,B1) B $ 1,000 2 6 A 1 Face value (FV) 2 Number of compounding periods per year 3 Number of years to maturity Number of compounding periods till 4 maturity (NPER) 5 Yield to maturity 6 Yield to maturity (RATE) 7 Bond price (PV) 8 Interest payment (PMT) 9 10 Coupon payment (PMT) 11 Coupon rate [Coupon payment x 12 Compoundings per year =$FV] 12 6.25% 3.125% $ (946) PMT(RATE,NPER,PV,FV) $ 25.78 5.16%

С 7 8 9 10 1,000 5.16% 2 25.78 11 3 A B A Par value (FV) B Coupon rate Number of compounding periods per year D = AxB/C Interest per period (PMT) E Number of years to maturity Number of compounding periods till F = CxE maturity (NPER) Market rate of return/Required rate of G return Market rate of return/Required rate of G/c return per period (RATE) Bond price 12 13 5% 14 2.5% PV(RATE,NPER,PMT,FV)*-1 15 16 Bond price 17 $ 1,004 18 =PV(2.5%,6,25.78,1000)*-1

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