Question

The current interest rate is 4%. Face value=$1000. T=8 years. What is the price of a bond with 6% coupon? What is the price a bond with 10% coupon?

Answer 1

Hello Sir/ Mam

Current Interest Rate, YTM = 4%

Face Value, FV = $1000

Time, n = 8 years

(a) 6% coupon, Price of bond = $1,134.65

Cashflows, PMT = $60

Now, using in financial calculator :

PMT = 60, FV = 1000, YTM = 4, n = 8, CPT-> PV

We get the answer as $1,134.65

(b) 10% coupon, Price of bond = $1,403.96

Cashflows, PMT = $100

Now, using in financial calculator :

PMT = 100, FV = 1000, YTM = 4, n = 8, CPT-> PV

We get the answer as $1,403.96

I hope this solves your doubt.

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