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Calculating Current Price and YTM

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1). CR Inc. has 7% coupon bonds with 10 years to maturity. The bond requires annual coupon payments. The face value is $1,000.

Calculate the current price of the bond if the yield to maturity is 9%. (work this problem using Excel spread sheet also)

2). Neuralware Company has issued 12% coupon bonds with $1,000 face value. The bond pays semi-annual coupon payments. It has 5 years to maturity. If the bonds are selling for $1,100, calculate the yield to maturity of the bonds.

Please show all calculations by hand as well as show how they could be calculated using excel.

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Solution Summary

Solutions depict the methodology to calculate current price and YTM.

Solution Preview

Please refer attached MS Excel file for calculations carried out with the help of MS Excel.

Solution:

1). CR Inc. has 7% coupon bonds with 10 years to maturity. The bond requires annual coupon payments. The face value is $1,000.

Calculate the current price of the bond if the yield to maturity is 9%. (work this problem using Excel spread sheet also)

Number of coupon payments=n=10
Coupon payment=C=1000*7%=$70
Price of bond=?
Maturity amount=Face value=$1000
Discount rate=YTM=r=9%
Price of bond= C/r(1-1/(1+r)^n)+M/(1+r)^n
...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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