Question

Suppose a bond has the following characteristics: $ 1,000 residual value, six years to maturity, an 8% oupon interest rate, and pays semi-annual interest. Determine the value of the bond if the "yield" required by the investor is 10%.

Answer 1

Where,
C = Periodic coupon payment,
P = Residual value of bond,
r = Yield to maturity
n = Number of periods till maturity

C = (1000 *8%) /2 = $40
n = 6 years * 2 = 12 periods
i = 10% / 2 = 5%

Substituting the values, we get:

.

If you want to do it in excel, refer the following:

Bond valuation
Years to maturity	6
Number of periods	12
Residual value	$ 1,000.00
Coupon rate	8.00%
Coupon payment per year	$        80.00
Coupon payment per period	$        40.00
Required yield	10.00%
Required yield per period	5.00%
Bond price	$911.37

Excel functions and formulas used: