Question

An 8 year bond with a par value of $1000 has a semiannual coupon of 7.1% and yield of 5%. What is the approximate price of this bond? Please provide excel formula.

a) $864

b) $1,000

c)$1085

d) $1106

e)$1137

Answer 1

Price of the Bond

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value. The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

Here, the calculation of the Bond Price using financial calculator is as follows

Variables	Financial Calculator Keys	Figures
Face Value [-$1,000]	FV	-1,000
Coupon Amount [$1,000 x 7.10% x ½]	PMT	35.50
Market Interest Rate or Required Rate of Return [5.00% x ½]	1/Y	2.50
Time to Maturity [8 Years x 2]	N	16
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond = $1,137

“Hence, the approximate price of this bond will be $1,137”