Question

Five years ago, Oleander, Inc. issued $10,000,000 worth of 15-year zero coupon bonds. The bonds carry a $5,000 par value. If the market prices the bonds to yield 5.5%, what is the current value of an Oleander bond?

What was the value of the bond three years ago, assuming the required rate of return was the same as today?

Please explain how to work this on a financial calculator.  

Answer 1

1)

FV = 5000

PMT = 0

N = 15

I/Y = 5.5

CPT PV

K = N

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

k=1

K =15

Bond Price =∑ [(0*1000/100)/(1 + 5.5/100)^k]     +   1000/(1 + 5.5/100)^15

k=1

Bond Price = 447.93

2)

FV = 5000

PMT = 0

N = 18

I/Y = 5.5

CPT PV

K = N

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

k=1

K =18

Bond Price =∑ [(0*1000/100)/(1 + 5.5/100)^k]     +   1000/(1 + 5.5/100)^18

k=1

Bond Price = 381.47