You have just purchased a regular bond. The has a face value

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You have just purchased a regular bond

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You have just purchased a regular bond. The has a face value of $1,000,000. The bond has a coupon rate of 10.1%. Coupons are paid semi-annually. The yield to maturity on the bond is 6.6%. The bond has 44 years to maturity. How much did you pay for the bond today?

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We can calculate the current price of the bond by using the following formula in excel:-

=-pv(rate,nper,pmt,fv)

Here,

PV = Current price of the bond

Rate = 6.6%/2 = 3.3% (semiannual)

Nper = 44*2 = 88 periods (semiannual)

Pmt = Coupon payment = $1,000,000*10.1%/2 = $50,500

FV = $1,000,000

Substituting the values in formula:

=-pv(3.3%,88,50500,1000000)

= $1,499,845.42 Or $1,499,845

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