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Problem 5-11 (algorithmic) 15 Question Help Last month Jim purchased $10,600 of U.S. Treasury bonds (their face value was $10

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Answer #1

Current Value of Jim’s Bond

  • The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
  • The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
  • Here, the calculation of the Bond Price using financial calculator is as follows

Variables

Financial Calculator Keys

Figures

Par Value/Face Value of the Bond [$10,600]

FV

10,600

Coupon Amount [$10,600 x 8.00% x ¼]

PMT

212

Market Interest Rate or Yield to maturity on the Bond [9.00% x ¼]

1/Y

2.25

Maturity Period/Time to Maturity [34 Years x 4]

N

136

Bond Price/Current market price of the Bond

PV

?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $9,479.

“Hence, the Current Value of Jim’s Bond will be $9,479”

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