Question

A bond pays a 3% coupon and makes semi-annual payments. The bond has 20 years to maturity and a YTM of 8%. What is the current bond price?

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =20x2

Bond Price =∑ [(3*1000/200)/(1 + 8/200)^k]     +   1000/(1 + 8/200)^20x2

k=1

Bond Price = 505.18

Using Calculator: press buttons "2ND"+"FV" then assign

PMT = Par value * coupon %/coupons per year=1000*3/(2*100)

I/Y =8/2

N =20*2

FV =1000

CPT PV

Using Excel

=PV(rate,nper,pmt,FV,type)

=PV(8/(2*100),2*20,-3*1000/(2*100),-1000,)