Question

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.

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)