Question

A 100 par bond pays semiannual coupons at 8%. Bond priced to yield 6% comp semiannually. Bond matures on 6/1/08 and is purchased on 10/1/03.Find full price on 10/1/03. Use 30/360

Answer 1

Value of bond would be $97.06

Please refer to the calculation. First we are calculating the value on 1st Nov 2003, exactly 4.5 years before the end date.

Further we are discounting it for one more month to arrive at 1st October value.

Formula used in excel for present value = FV / (1+rate/ no. of period)^ no. of period

PV annuity factor is calculated using the following formula :

A B C D Interest paid on 1st Nov and 1st May Valuation on 1st November 2003 YTM 6.00% 3.00% Semi Annual PVF@3% for 9 installments 4.15 9 Installments because 4.5 years*2 payments every year - wm* non o OEM: 105* 085 Semiannual payment 4.00 =100*8%/2 PV of all the payments 16.61 =F10*F12 PV of face value 76.93 =100/(1+6%)-4.5 94 Add: Value of bond on Nov 1st 2003 Coupon payment on that date Total Value 98 =F18+F19 Discounting above for 1 more month to arrive at vale on 1st Octover 2003 97.06 =F20/(1+6%/12) AE