A 12 year bond 1000 face value bond has an 8% annual coupon and a yield to maturity of 7%

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?

Solutions

Expert Solution

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

jeff jeffy answered 2 years ago

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