Question

1. A government bond issued in Germany has a coupon rate of 8 percent, a face value of 100 euros, and matures in seven years. The bond pays annual interest payments. Calculate the price of the bond (in euros) if the yield to maturity is 4.2 percent.

2. A five-year treasury bond with a coupon rate of 8 percent has a face value of $1,000. If it pays interest semiannually, then it pays interest ($ coupon payments)

Answer 1

Part 1:

Price of Bond = PV of CFs from it.

Year	Cash Flow	PVF/ PVAF @4.2 %	Disc CF
1 - 7	Euro 8.00	5.9579	Euro 47.66
7	Euro    100.00	0.7498	Euro 74.98
Bond Price			$    122.64

As Coupon Payments are paid periodically with regular intervals, PVAF is used.
Maturity Value is single payment. Hence PVF is used.

What is PVAF & PVF ???
PVAF = Sum [ PVF(r%, n) ]
PVF = 1 / ( 1 + r)^n
Where r is int rate per Anum
Where n is No. of Years

How to Calculate PVAF using Excel ???
+PV(Rate,NPER,-1)
Rate = Disc rate
Nper = No. of Periods

Part 2:

Coupon Payment = Face value * Coupon rate / No. of times coupon paid

= $ 1000 * 8% / 2

= $ 40