Question

1. Find the price of a bond. The time is today. The $1,000 par value corporate bond you are interested in has a 5% coupon rate, paid semi-annually. The maturity of the bond is 20 years. The rating agencies have determined that this company should have a B+ rating, making its yield be 6%. Show a time line of these cash flows.   What is the price you will have to pay for the bond?

N                I                 PV              PMT           FV

Answer 1

a)	Price of Bonds today			$ 884.43
	Working:
	N	number of semi annual period			nper	20*2		=	40
	I	semi annual market interest rate			rate	6%/2		=	0.03
	PV	Present value of future cash flows				?		=	?
	PMT	semi annual interest paid in cash				1000*5%*6/12		=	$          25
	FV	Face Value at the maturity of bonds						=	$    1,000
	PV	=	=-pv(rate,nper,pmt,fv)
		=	$ 884.43
b)
	Time line of these cash flows:
	Number of semi annual period				Cash flows
	0				$ -884.43
	1-40				$           25
	40				$     1,000