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You have just purchased a regular bond
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?
Expert Solution
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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