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You just bought a 6% coupon bond for $1,065. The bond has a 7-year remaining maturity,...

  1. You just bought a 6% coupon bond for $1,065. The bond has a 7-year remaining maturity, a $1000 face value, and pays coupons semiannually. What will be the value of your bond 3 years from now if interest rates remain unchanged? please answer not using excel!

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Answer #1

Number of periods = 7 * 2 = 14

Coupon = (0.06 * 1000) / = 30

YTM = 4.89%

Keys to use in a financial calculator: 2nd I/Y 2, FV 1000, PV -1065, N 14, PMT 30, CPT I/Y

Number of years left = 7 - 3 = 4

Number of periods = 4 * 2 = 8

Rate = 4.89% / 2 = 2.445%

Value = Coupon * [1 - 1 / (1 + r)n] / r + FV / (1 + r)n

Value = 30 * [1 - 1 / (1 + 0.02445)8] / 0.02445 + 1000 / (1 + 0.02445)8

Value = 30 * [1 - 0.82428] / 0.02445 + 824.2783

Value = 30 * 7.18691 + 824.2783

Value = $1,039.89

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