In: Finance
A 10-year bond is issued today. Its coupon rate is 12% and pays coupon semiannually. If the YTM for this bond is 8% and you decide to buy this bond 57 days later. How much do you need to pay?
Face/Par Value of bond = $1000
Semi-Annual Coupon Bond = $1000*12%*1/2
= $60
No of Coupon payments(n) = 10 years*2= 20
Semi-annual YTM = 8%/2 = 4%
Calculating the Market price of Bond today:-
Price = $815.420 + $456.387
Price = $1271.81
The current market price of Bond Today is $1271.81
- You decide to purchase the bond after 57 days.
Price of Bond after 57 days = Today price + Accured Interest of 57 days
where, Accured Interest of 57 days = Semi-annual coupon payment*57/182 = $60*57/182
= $18.79
Price of Bond after 57 days = $1271.81 + $18.79
Price of Bond after 57 days = $1290.60
SO, amount you need to pay is $1290.60