In November 2018, you buy £100 face value of UK Government bonds maturing in 2022

Finance Dec 10, 2020

In November 2018, you buy £100 face value of UK Government bonds maturing in 2022. The coupon rate is 5% per annum. If the interest rate is 0.175% per annum, what is the present value of the payments? (A) £117.22 B) £116.22 C) £120.22 D £119.22 E None of the above

Expert Solution

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2

k=1

K =4x2

Bond Price =∑ [(5*100/200)/(1 + 0.175/200)^k] + 100/(1 + 0.175/200)^4x2

k=1

Bond Price = 119.22

Using Calculator: press buttons "2ND"+"FV" then assign

PMT = Par value * coupon %/coupons per year=100*5/(2*100)

I/Y =0.175/2

N =4*2

FV =100

CPT PV

Using Excel

=PV(rate,nper,pmt,FV,type)

=PV(0.175/(2*100),2*4,-5*100/(2*100),-100,)

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote