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Homework answers / question archive / In November 2018, you buy £100 face value of UK Government bonds maturing in 2022

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

Finance

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

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 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,)

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