Paul owns a 20-year U.S. Treasury bond that he bought 4 years ago. The bond has...

Paul owns a 20-year U.S. Treasury bond that he bought 4 years ago. The bond has a par value of

$1,000 and a coupon rate of 6 percent. Interest is paid semi-annually. The bond’s yield-to-maturity

is 8 percent. What is the current price of the bond?

Expert Solution

Current price of the Bond

The Price 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

Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$1,000 x 6.00% x ½]	PMT	30
Market Interest Rate or Yield to maturity on the Bond [8.00% x ½]	1/Y	4.00
Maturity Period/Time to Maturity [(20 Years – 4 Years) x 2]	N	32
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 (PV) = $821.26.

“Hence, the current price of the Bond will be $821.26”

jeff jeffy answered 4 months ago

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