Determining Price of bond
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An investor has two bonds in his or her portfolio, Bond C and Bond Z. Each matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.6 percent. Bond C pays a 10 percent annual coupon, while Bond Z is a zero coupon bond. Assuming that the yield to maturity of each bond remains 9.6 over the next four years, calculate the price of each of the bonds at the following years to maturity:
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Solution Summary
Solution describes the steps for determining price of a coupon paying bond and a zero coupon bond.
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Please see the attached file for complete description of formulas in MS Excel.
Solution:
Case C
Price of bond = PV of all annual coupon payments + PV of $1000 received at the end of 4 years
n = number of periods=4
Coupon payment =1000*10%=100
YTM=9.60%
Use PV function in ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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