Question

You own a bond with the following features: 10 years to maturity, face value of $1000, coupon rate of 4% (annual coupons) and yield to maturity of 4.8%. If you expect the yield to maturity to remain at 4.8%, what do you expect the price of the bond to be in two years?

Answer 1

Price of the Bond in two years

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 4.00%]	PMT	40
Market Interest Rate or Required Rate of Return [4.80%]	1/Y	4.80
Time to Maturity [10 Years – 2 Years]	N	8
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 = $947.87.

“Therefore, the Price of the Bond will be $947.87”