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Homework answers / question archive / Calculate the price of a bond originally issued six years ago that pays semiannual interest at the rate of 12 percent and matures in seven years at $1,900
Calculate the price of a bond originally issued six years ago that pays semiannual interest at the rate of 12 percent and matures in seven years at $1,900. The market currently requires an 8 percent return for a bond of this risk.
We can calculate the price of the bond by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of the bond
Rate = 8%/2 = 4% (semiannual)
Nper = (7-6)*2 = 2 periods (semiannual)
Pmt = Coupon payment = $1,000*12%/2 = $60
FV = $1,000
Substituting the values in formula:
= -pv(4%,2,60,1000)
= $1,037.72
