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What is the price of bond when the market interest rate is 8%, 10% and 12%?...

What is the price of bond when the market interest rate is 8%, 10% and 12%? A two-year bond with a 10percent coupon pays the interest annually. Its face value is $1000.

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Answer #1

The price of bond needs to be found by using PV function in EXCEL

=PV(rate,nper,pmt,fv,type)

nper=maturity period=2

pmt=coupon payment=(10%*face value)=(10%*1000)=100

fv=1000

a. If interest rate is 8%

=PV(8%,2,100,1000,0)=$1,035.67

The price of the bond=$1,035.67

b. If the interest rate is 10%, which is equal to coupon rate of 10%. Then the price of the bond=face value=$1000

=PV(10%,2,100,1000,0)=$1000.0

The price of the bond=$1000

c. if the interest rate is 12%

=PV(12%,2,100,1000,0)=$966.20

The price of the bond=$966.20

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