In: Finance
A 12 year bond 1000 face value bond has an 8% annual coupon and a yield to maturity of 7%, what will be the price of the bond 3 years from today?
Price after 3 years means 9 years before the maturity date
Price (Y=3) = Coupen Amount * PVAF(r, n) + Face value * PVIF(r, n)
where
PVAF = Present value annuity factor
PVIF = Present value interest factor
r = Yield
n = number of years
Price (Y=3) = ( 1000 * 8% ) * PVAF(7%, 9) + 1000 * PVIF(7%, 9)
= 80 * [ 1/1.07 + 1/1.072 + ........ + 1/1.079 ] + 1000 * 1/1.079
= 80 * 6.5152 + 1000 * 0.5439
= 521.22 + 543.90
= $ 1065.12 Answer
Thus price after 3 years would be $ 1065.12