Question

1. What is the price of a bond given the following information?  

2. What is the net dollar amount you will pay for this bond on November 30, 2020?

Face Value:  $1,000

Coupon: 6%, paid twice a year on June 30 and December 31.

Matures:  December 31, 2024

Date Purchased:  You purchased the bond in the secondary market on November 30, 2020.  (Assume today is November 30, 2020; the day you purchase this bond)

Current market rate (rate used to discount the future cash flows to present value) is  4.0%.

Answer 1

Price of Bond is nothing but PV of Cash flows from it.

Particulars	Amount
Coupon Amount	$        30.00
Maturity Value	$   1,000.00
Disc Rate	2.00%

Coupon amount = 1000 * 6% *6/12

= $ 30

Discount rate = 4% *6/12 = 2%

Period	Cash Flow	PVF @2 %	Disc CF
1	$      30.00	0.9804	$      29.41
2	$      30.00	0.9612	$      28.84
3	$      30.00	0.9423	$      28.27
4	$      30.00	0.9238	$      27.72
5	$      30.00	0.9057	$      27.17
6	$      30.00	0.8880	$      26.64
7	$      30.00	0.8706	$      26.12
8	$      30.00	0.8535	$      25.60
9	$      30.00	0.8368	$      25.10
9	$ 1,000.00	0.8368	$    836.76
Price of Bond	$ 1,081.62