Consider a corporate bond with a face value of $1,000, 2 years to maturity and a coupon rate of 5%. Coupons are paid semi-annually. The next coupon payment is to be made exactly 6 months from today. What is this bond's price assuming the following spot rate curve. 6-month spot rate: 3.1%. 12-month: 5%. 18-month: 5.5%. 24-month: 5.8%. Assume semi-annual compounding. Round your answer to the nearest cent (2 decimal places).
Price of a bond = PV of Cfs from it.
| Particulars | Amount |
| Coupon Amount | $ 25.00 |
| Maturity Value | $ 1,000.00 |
| Disc Rate | 2.900% |
| Starting | 1 |
| Ending on | 4 |
| Period | Cash Flow | PVF/ PVAF @2.9 % | Disc CF |
| '1 - 4 | $ 25.00 | 3.7260 | $ 93.15 |
| '4 | $ 1,000.00 | 0.8919 | $ 891.95 |
| Bond Price | $ 985.10 |
PVAF = Sum [ PVF(r%, n) ]
PVF = 1 / ( 1 + r)^n
Where r is int rate per Period
Where n is No. of Periods
Pls comment, if any further assistance is required.
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