Question

A 12-year bond with a face value of $5000 is redeemable at par and earns interest...

A 12-year bond with a face value of $5000 is redeemable at par and earns interest at j2= 9.2%. If the yield rate is j2= 7.8%, find the book value 2 months before the payment of the 9th coupon. Use compound interest for points in time between coupon payments.

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Answer #1

Answer : - Book value of bond before the 9th coupen = $2,172.11

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Explanations :-

Particulas formula
Annual Yield Rate (rate) 7.8%
Years to maturity (nper) 4 12-8
Coupen payment (pmt) $460 $5000 × 9.2%)
Maturity value at end (fv) $5000

Note : if the question say, the interest is paid semi annually, then devide the yield to maturity with 2 , yaers to maturity chanf from 4 to 16 ( 12 × 2 - 8), and coupen payment will divided with 2

Book value of the bond can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)

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