Question

Consider an annual coupon bond with a face value of $100​, 12 years to​ maturity, and a price of $76. The coupon rate on the bond is 6​%. If you can reinvest coupons at a rate of 5​% per​ annum, then how much money do you have if you hold the bond to maturity?

Answer 1

Ans :

Years	Interest	Future value = interest * future vale factor	Calculation
1	6	10.26203615	6*(1.05)^11
2	6	9.773367761	6*(1.05)^10
3	6	9.307969296	6*(1.05)^9
4	6	8.864732663	6*(1.05)^8
5	6	8.442602536	6*(1.05)^7
6	6	8.040573844	6*(1.05)^6
7	6	7.657689375	6*(1.05)^5
8	6	7.2930375	6*(1.05)^4
9	6	6.94575	6*(1.05)^3
10	6	6.615	6*(1.05)^2
11	6	6.3	6*(1.05)^1
12	6	6	6*1

Total interest that would be received when invested at 5% = 95.50

Face value amount that would be received at maturity = 100

Total money at maturity = 195.50

Note 1 : future value factor calculation

(1.05)^11	1.710339
(1.05)^10	1.628895
(1.05)^9	1.551328
(1.05)^8	1.477455
(1.05)^7	1.4071
(1.05)^6	1.340096
(1.05)^5	1.276282
(1.05)^4	1.215506
(1.05)^3	1.157625
(1.05)^2	1.1025
(1.05)^1	1.05