Calculating the Present Value of given investments
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1.) A 10-year German government bond (bund) has a face value of €100 and a coupon rate of 5% paid annually. Assume that the interest rate (in euros) is equal to 6% per year. What is the bond's PV?
2.) A 10-year U.S. Treasury bond with a face value of $10,000 pays a coupon of 5.5% (2.75% of face value every six months). The semiannually compounded interest rate is 5.2% (a six-month discount rate of 5.2/2 = 2.6%).
What is the present value of the bond?
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This solution depicts the steps to calculate the present value of the given investments.
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1.)
Face value of bond=Maturity amount=M=100 euros
Coupon amount=C=100*5%=5 euros
Discount rate=r=6%
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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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