00:02
Hello students, in this question, we have to compute the bond price.
00:05
So, for that we need to find out the present value for the bond for both 5 year and 20 year of maturity.
00:11
So, it will be computed as for both bonds coupon payment is 8 % so price is equal to c into 1 minus 1 plus r to the power minus n divided by r plus f into 1 plus r to the power minus n.
00:40
So, here c is coupon payment, r is yield to maturity, n is number of years, f is face value and c is coupon payment.
00:52
So, coupon payment is 8 % of 1000 divided by 2 is equal to 40.
01:00
Yield to maturity, which is r, it is 10 % divided by 2, it is 5%.
01:06
Bond price for 5 year and 20 year maturity, maturity is 5 year bond, n is equal to 5 year bond, will be 10.
01:19
So, now we're computing the bond price.
01:21
Bond price is equal to, it is for 5 year, here 40 into 1 minus 1 plus 0 .05 to power minus 10 divided by 0 .05 plus 1000 face value into 1 plus 0 .05 to power minus 10.
01:46
So, upon solving this, we get the bond price as 922 .80...