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# Price of a bond

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Suppose you buy a 6 percent coupon bond today for 950. The bond has a face value of 1000, has 16 years until maturity, and pays interest semi-annually. When you initially purchased the bond,what rate of return did you expect to earn on your investment? Three (3) years after purchasing the bond you decide to sell it. At that time the YTM on your bond has decreased by 100 basis points. What price will the bond sell for?What is the realized yield on your investment?

#### Solution Preview

Coupon Rate = 6%
Face Value = 1000
Annual Payment = .06 x 1000 = 60
Semi Annual Payment = 60/2 = 30
Number of periods = 16
Number of semiannual periods = 32
Present Value = 950

Use the following formula in excel
= rate(periods, payment, PV, FV)
=RATE(32,30,-950,1000)
= 3.25%
This represents half yearly ...

#### Solution Summary

The solution calculates the price of a bond using the scenario in the question.

\$2.19