Question

A Delta Corporation bond issue is described below. It is sold for a settlement on July 10, 2019.

Annual Coupon 9

Coupon Payment Frequency Semiannual

Interest payment dates 20 March, 20 September

Maturity Date 20 September 2020

Day Count Convention 30/360

Annual Yield to Maturity 5 percent

What is the full price of the bond that will settle on July 10, 2019?

Answer 1

Steps:

1. Our initial step will be to calculated the time to maturity from 10-Jul-19 to 20-Sep-20

Using Days360 function and putting the start and end date as above mentioned, we get Days = 430

2. Now, we convert 430 days into semi annual periods by dividing by 180. We get 2.39 periods.

3. Next step will be to calculate the coupon and YTM as per semi annual periods. We divide annual coupon and YTM by 2.

Coupon = 4.5 and YTM = 2.5%

4. Assuming FV of bond to be 100

5. We need to calculate the price on Jul-10 (Present Value of bond issued)

6. Using PV function in excel and inputting values as

N= 2.39

PMT = 4.5

YTM = 2.5%

FV = 100

And putting period as 0 i.e. end of period

PV = 104.58

The price of the bond which will settle on 10-Jul-19 will be 104.58