In: Finance
I have two bonds which Bond 1 pays annually and Bond 2 pays semi Annually( manually calculation not excell)
Bond 1:YTM=3.50%,Coupon value = 5.25%,maturity in years is 20
Bond 2:YTM=5.25%,Coupon value = 3.75%,maturity in years is 6
Face value is $100
calculate the prices of 2 Bonds
show formula as well
Price of Bonds
Price of the bond=present value of coupon bond for n years+PV of maturity value
=C/(1+i)+C/(1+i)2+C(1+i)3……..C(1+i)n+M/(1+i)n
Where i=yield to maturity
C=coupon value
M=maturity value
Using formula for finding sum of G.P(a*(1-rn)/(1-r)), we get
Price of bond=C*{1-(1/(1+i)n)}/i +M/(1+i)n
Price of bond 1
Price of bond= C*{1-(1/(1+i)n)}/i +M/(1+i)n
=100*5.25/100*{1-(1/1.035)20}/3.5%+100/(1.035)20
=5.25*(1-0.96618420)/3.5%+100/1.989783
=5.25*(1-0.50257)/3.5%+50.25659
=5.25*0.49743/3.5%+50.25659
=5.25*14.21228+50.25659
=$74.615+50.257
=$124.871
Price of bond 2
Price of semi annual bond= C/2*{1-(1/(1+i/2)2n)}/i +M/(1+i/2)2n
=3.75/2*{1-(1/1.02625)6*2}/2.625%+100/(1.02625)12
=1.875*(1-0.97442112)/2.625%+100/1.36471
=1.875*(1-0.732756)/2.625%+73.27564
=1.875*0.267244/2.625%+73.2564
=1.875*10.18071+73.27564
=19.08883+73.27564=$92.36