Question

Consider the following bond issued by Halliburton:

• coupon rate: 8.294%, with semi-annual coupon payments
• Face value: $1,000
• Maturity date: August 1, 2023

Assume that today is August 2, 2016. Suppose, for the sake of argument, that the annual discount rate is 2.01%, with semi-annual compounding. What is the value of the bond?

Do not round at intermediate steps in your calculation. Round your answer to the nearest penny. Do NOT include a minus sign! Do not type the $ symbol.

Answer 1

Value of the Bond

The Current Value 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 8.294% x ½]	PMT	41.47
Market Interest Rate or Required Rate of Return [2.01% x ½]	1/Y	1.005
Time to Maturity [7 Years x 2]	N	14
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 = $1,408.43.

“Hence, the Value of the Bond will be $1,408.43”