Question

Assume that June 19, 2018 is the settlement date. A bond was issued on November 12,...

Assume that June 19, 2018 is the settlement date. A bond was issued on November 12, 2005, and matures November 12, 2025. It pays a 4.50% coupon semiannually and has a yield on June 19, 2018 of 7.25%. What was the market rate of the above bond when it was first issued? How would I do this on excel?

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Answer #1

Assumption Par Value of Bond is $ 1000

Market Price of Bond = PV of Cash Flows from it.

COupon payments are made semi Annually

i.e on Nov 12 & May 12.

First FInd the Value of Bond on NOV 12- 2019 ( Next Coupon Payment Date)

PVF = 1/(1+0.03625)^n

Disc CF = CF * PVF

Value of Bond on 19-12-2018 is dicounted value of 865.53 @ 2.9% ( 7.25% * 146 / 365 )

= 865.53 * 1 / 1.0290

= 841.14

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