Practice 7.1 Find Bond Valuation
As with any financial instrument, the price of a
bond is just the present value of the future cash flows. What is
the price of a bond with semiannual coupon payments and the
following characteristics?
Coupon rate:
6.00%
Years to maturity:
15
Yield to maturity:
8.00%
Par value:
$ 1,000
Since the bond has semiannual payments, the coupon
payments will be:
Coupon payments:
Now we can find the present value of the coupon
payments, the present value of par, and the bond price, which
are:
Present value of coupon payments:
Present value of par:
Bond price:
Of course, we could have entered the coupon
payments and par value in the same PV function, making sure that
both were negative. This would give us:
Bond price:
Practice 7.2 Find Bond Valuation Using the Price
Function
What is the price of a bond with the following
characteristics?
Years to maturity
5
Settlement date:
1/1/00
Maturity date:
1/1/05
Annual coupon rate:
9.00%
Yield to maturity:
7.50%
Face value (% of par):
100
Coupons per year:
2
Bond price (% of par):
Dollar price of bond:
Practice 7.3 Finding the YTM
You can use the YIELD function in Excel to
calculate the yield to maturity of a bond. Suppose we have a bond
with the following characteristics. What is the YTM of the
bond?
Years to maturity
8
Settlement date:
1/1/00
Maturity date:
1/1/08
Annual coupon rate:
7.50%
Bond price (% of par):
98.120
Face value (% of par):
100
Coupons per year:
2
Yield to Maturity (YTM):