Bond Value is determined by computing the present value of the interest payments, which represent an ordinary annuity, and the present value of the maturity value, which represents a lump-sum payment. Titan Corp issued a 1,000 par value bond paying 8 percent interest with 15 years to maturity. Assume the current yield to maturity is 10 percent.What is the price (value) of the bond?
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F = Face value = |
$1,000.00 |
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C = Coupon rate = |
8.00% |
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R = Yield = YTM = |
10.00% |
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N = Number of coupon payments till maturity = |
15 |
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Formula for bond value = (C x F x ((1-((1+R)^-N)) / R) + (F/(1+R)^N) |
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Bond Value = (8%*1000*((1-((1+10%)^-15))/10%)+(1000/(1+10%)^15)) |
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Bond value or Bond Price = |
$847.88 |
OR
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Using financial calculator BA II Plus - Input details: |
# |
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I/Y = Rate or yield / frequency of coupon in a year = |
10.00 |
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PMT = Payment = Coupon / frequency of coupon = |
-$80.00 |
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N = Total number of periods = Years x frequency of coupon = |
15 |
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FV = Future Value = |
-$1,000.00 |
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CPT > PV = Bond Value = |
$847.88 |
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