Question

On January 1^st, 2003 ABC company issued a $10,000,000 bond with a 5% coupon rate. The bond matures on January 1^st, 2033 and makes coupon payments twice a year. If the annual interest rate in 2003 was 6.5%, calculate the price of the bond on January 1^st, 2003.

Answer 1

Particulars	Cash flow	Discount factor	Discounted cash flow
present value Interest payments-Annuity (3.25%,60 periods)	$               250,000.00	26.25366	$     6,563,414.05
Present value of bond face amount -Present value (3.25%,60 periods)	$          10,000,000.00	0.14676	$     1,467,561.74
Bond price			$     8,030,975.79
Face value			$   10,000,000.00
Premium/(Discount)			$   (1,969,024.21)
Interest amount:
Face value	10,000,000
Coupon/stated Rate of interest	5.000%
Frequency of payment(once in)	6 months
Interest amount	10000000*0.05*6/12=		$        250,000.00
Present value calculation:
yield to maturity/Effective rate	6.50%
Effective interest per period(i)	0.065*6/12=		3.250%
Number of periods:
Particulars	Amount
Number of interest payments in a year	2
Years to maturiy	30.0
Number of periods	60

Answer is:

8,030,975.79