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Prices and yields. A 10-year German bond has a FV=100 and a coupon rate of 5%...

Prices and yields. A 10-year German bond has a FV=100 and a coupon rate of 5% annually. Interest rate is 6%. What is the bond´s PV? Calculate the result by: -calculating the discount factors for each year and -using annuity factor for temporary cash flow

Please show all calculations !

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Answer #1

1. calculating the discount factors for each year

Year Cash flow PVF PV
1 5 0.943396 4.716981
2 5 0.889996 4.449982
3 5 0.839619 4.198096
4 5 0.792094 3.960468
5 5 0.747258 3.736291
6 5 0.704961 3.524803
7 5 0.665057 3.325286
8 5 0.627412 3.137062
9 5 0.591898 2.959492
10 5 0.558395 2.791974
10 100 0.558395 55.8395
Price 92.63994

2. using annuity factor for temporary cash flow

PVAF(6%, 10 years) = 7.360087051

Bond's price = $5 * PVAF(6%, 10 years) + $100 * PVF(6%, 10 years) = $5 * 7.360087051 + $100 * 0.558395

Bond's price = 92.63994

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