Question

Xanth Co. has 4.2% annual coupon bonds with face value of $1,000 and 5 years remaining until maturity. The bonds are priced to yield 6.0%. What is the present value of the bonds face value to be repaid at maturity (do not include the coupon payments)? (please solve using N, I/Y, PV, PMT, and FV on a financial calculator)

Answer 1

Using financial calculator BA II Plus - Input details:	#
I/Y = R = Rate or yield / frequency of coupon in a year =	6.000000
PMT = Coupon rate x FV / frequency = -1000 x 4.2% =	-$42.00
N = Number of years remaining x frequency = 5 =	5.00
FV = Future Value =	-$1,000.00
CPT > PV = Present value of bond = Price of Bond = Current value of bond =	$924.18
Formula for bond value: PV = |PMT| x ((1-((1+R%)^-N)) / R%) + (|FV|/(1+R%)^N) =
PV = (42* ((1-(1+0.06)^-5)/0.06) + 1000/(1+0.06)^5)	$924.18

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(Please clear in comment what you mean by not including coupon payment?)

Above method is used to calculate bond payment with coupons otherwise we have zero coupon bonds.