Question

Find the price of 10-year 5% coupon bond if the price of 10-year 7% coupon bond is $107 and 10-year interest rate is 6.5%. All bonds have $100 face value and pay semi-annual coupons.

Answer 1

K = N

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

k=1

K =10

Bond Price =∑ [(5*100/100)/(1 + 6,5/100)^k]     +   100/(1 + 6,5/100)^10

k=1

Bond Price = 89,22

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

PMT = Par value * coupon %=100*5/(100)

I/Y =6,5

N =10

FV =100

CPT PV

Using Excel

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

=PV(6,5/(100),10,-5*100/(100),-100,)