Question

Consider a 6.6% semiannual coupon bond with 10 years to maturity and a current price of $850. What will the price be in one year if the yield to maturity (YTM) remains constant? Round your answer to two decimal places. (Please show step by step using N, I/Y, PV, PMT and FV on a calculator as well if needed.)

Answer 1

Par Value = $1,000
Current Price = $850

Annual Coupon Rate = 6.60%
Semiannual Coupon Rate = 3.30%
Semiannual Coupon = 3.30% * $1,000
Semiannual Coupon = $33

Time to Maturity = 10 years
Semiannual Period = 20

Calculation of semiannual YTM using financial calculator:

N = 20
PV = -850
PMT = 33
FV = 1000

I = 4.45%

Semiannual YTM = 4.45%

Calculation of price of bond in one year:

Time to Maturity = 9 years
Semiannual Period = 18

N = 18
I = 4.45%
PMT = 33
FV = 1000

PV = -859.60

Price of bond in one year is $859.60