Question

Consider a coporate bond maturing on April 14, 2025 witha. coupon rate of 5% and yield...

Consider a coporate bond maturing on April 14, 2025 witha. coupon rate of 5% and yield of 6%. What is the clean price of the bond on July 23, 2018?

a. 945.22

b. 946.13

c. 958.88

d. 1,000.00

i know the answer is A. I want to know how and why it is that answer. I dont know how to solve? I am using BA II PLUS and TI-84 Plus

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Answer #1

FV = Future Value = $ 1,000 (assuming face value of bond is $ 1,000)

N = Term = ((14-Apr-2025) – (23-Jul-2018))/365 = ~ 6.732 years

PV = Present Value or Price of Bond = ?

PMT = Coupon = 5% x 1000 = 50

I/Y = Yield = 6%

Using financial calculator BA II Plus – Texas Instrument:

Input values in following sequence (all inflows in negative eg. FV and PMT):

N = 6.732 ; PMT = -50 ; I/Y = 6 ; FV = -1000 ; CPT > PV

Result: PV = 945.92

Hence, we can go with option A. 945.22; which close to 945.92.

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