Question

A $1,000 par value 16-year bond with m coupons per annum has a price of $910.63. If the write-up value in the book value of the bond in the first 8 years is $54 and the yield rate of the bond is 5.0945% effective per annum, find the redemption value of the bond.

Please show all work by hand, without using a finance calculator or Excel. Thank you.

Answer 1

We will first calculate the coupon amount of the bond:

Note: It has been assumed that write up value of $54 is per annum for each of the 8 years.

Coupon amount = Write up value * 100

Face Value   

= 54 * 100

1000

= 5.4% p.a.

Calculation of redemption value:

Let redemption value be X.

P₀ = Coupon Amount (PVAF 5.0945%, 16) + Redemption value (PVIF 5.0945%, 16)

910.63 = 54 (10.7652) + X (.4516)

910.63 = 581.32 + .4516X

329.31 = .4516X

X = $729.21

therefore redemption value is $729.21