A bond has a par value of $1000 and a coupon rate of 9.5%. The bond matures in 7 years. What is the value of the bond if similar bonds yield 4%?
This bond makes semiannual payments. Can you show how to input it in a financial calculator.
The value of the bond is computed as shown below:
The coupon payment is computed as follows:
= 9.5% / 2 x $ 1,000 (Since the payments are semi annually, hence divided by 2)
= $ 47.50
The YTM will be as follows:
= 4% / 2 (Since the payments are semi annually, hence divided by 2)
N will be as follows:
= 7 x 2 (Since the payments are semi annually, hence multiplied by 2)
So, the price of the bond using the financial calculator will be as follows:
Simply plug the below figures in the calculator
PMT = 47.50
N = 14
I/Y = 2
FV = 1,000
Finally press CPT and then press PV.
It will give PV equal to 1,332.92 Approximately
Feel free to ask in case of any query relating to this question
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