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Homework answers / question archive / Compute the price of the following bonds: ? Bond A: Coupon bond, 2% coupon paid semi-annually, with maturity of 12 years
Compute the price of the following bonds: ? Bond A: Coupon bond, 2% coupon paid semi-annually, with maturity of 12 years. ? Bond B: Zero coupon bond with maturity of 6 years. ? Bond C: Coupon bond, 5.75% coupon paid yearly, with maturity 20 years. Assume that all 3 bonds have the same nominal: 1000 euro. Your required rate of return is the same for each bond and equal to 5%.
Answer : Calculation of Price of Bond :
Price of bond A = [Coupon * PVAF@r% for n periods] + [Face Value * PVF@r% for nth period]
where Coupon = 1000 * 2% = 20 / 2 = 10 [Divided by 2 as paid semiannually]
r is the required rate of interest i.e 5% / 2 = 2.5% [Divided by 2 as paid semiannually]
n is the number of maturity i.e 12 * 2 = 24 [Multiplied by 2 as paid semiannually]
Price of bond A = [10 * PVAF@2.5% for 24 periods] + [1000 * PVF@2.5% for 24th period]
= [10 * 17.8849858309] + [1000 * 0.5528753541]
= 178.849858309 + 552.8753541
= 731.73
Price of Bond B = [1000 * PVF@5% for 6th period]
= 746.22
Price of bond C = [Coupon * PVAF@r% for n periods] + [Face Value * PVF@r% for nth period]
where Coupon = 1000 * 5.75% = 57.5
r is the required rate of interest i.e 5%
n is the number of maturity i.e 20
Price of bond C = [57.5 * PVAF@5% for 20 periods] + [1000 * PVF@5% for 20th period]
= [57.5 * 12.4622103416] + [1000 * 0.37688948281]
= 716.577094642 + 376.88948281
= 1093.47
