Question

What is the current price of a 4 year semi-annual bond with a face value of $1000 and a coupon rate of 6%? Assume the current interest rate is 5% a. 1035.85 b. 1056.33 c.1089.12 d.1000

Answer 1

Current Price of the Bond

• The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
• The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
• Here, the calculation of the Bond Price using financial calculator is as follows

Variables	Financial Calculator Keys	Figures
Par Value/Face Value of the Bond [$1.000]	FV	1,000
Coupon Amount [$1,000 x 6.00% x ½]	PMT	30
Market Interest Rate or Yield to maturity on the Bond [5.00% x ½]	1/Y	2.50
Maturity Period/Time to Maturity [4 Years x 2]	N	8
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $1,035.85.

“Hence, the Current Price of the Bond will be $1,035.85”