Question

We discussed earlier an 6% coupon, 20-year maturity bond with par value of $1,000 paying 40 semiannual coupon payments of $30 each. Suppose that the interest rate is 10% annually, or r = 5%  per six-month period. Then the value of the bond?

Answer 1

Information provided:

Par value= future value= $1,000

Time= 20 years*2= 40 semi-annual periods

Coupon rate= 6%/2= 3%

Coupon payment= 0.03*1,000= $30 per semi-annual period

Yield to maturity= 10%/2= 5% per semi-annual period

The value of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 30

I/Y= 5

N= 40

Press the CPT key and PV to compute the present value.

The value obtained is 656.82.

Therefore, the value of the bond is $656.82.

answered by: anonymous