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What is the market value of a State of Ohio bond with a 9 percent coupon,...

What is the market value of a State of Ohio bond with a 9 percent coupon, maturing in 3 years if the market rate for the bond is 3 percent and interest payments are made annually?

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Answer #1

Let par value of the bond be $100

Coupon rate = 9% with annual frequency

Coupon amount = 9%*100 = $9

Number of years = 3

Market rate of the bond = 3%

The market value of bond = Present value of the coupons and principal

It can be calculated using PV function in Excel

=PV(RATE, NPER,PMT,FV,TYPE)

RATE = Market rate = 3%

NPER = 3

PMT = Coupon amount = 9

FV = Par value = 100

Thus, market value = PV(3%,3,9,100,0)

= $116.97

Thus, market value of the bond is $116.97 per $100 of par value

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