Question

Please show me how to solve this on a financial calculator in detail. A 1,000 face value bond currently has a YTM of 8.22 percent. The bond matured in 5 years and pays interest semi annually. The coupon rate is 7.5 percent. What is the current price of this bond?

Answer 1

Information provided:

Face value= future value= $1,000

Yield to maturity= 8.22%/2= 4.11% per semi-annual period

Time= 5 years*2= 10 semi-annual periods

Coupon rate= 7.50%/2= 3.75%

Coupon payment= 0.0375*1,000= $37.50

The current price of the bond is calculated by entering the following in a financial calculator:

FV= 1,000

I/Y= 4.11

N= 10

PMT= 37.50

Press CPT key and then PV to calculate the current price of the bond.

The value obtained is $970.96.

Therefore, the current price of the bond is $970.96.