A bond with semi-annual coupon payments of $1,200 has three years to maturity and an effective yield to maturity of 10% (APR of 20%)

Economics Mar 08, 2021

A bond with semi-annual coupon payments of $1,200 has three years to maturity and an effective yield to maturity of 10% (APR of 20%). If the price of this bond is $20,467.11, what is its face value? A) $15,240.8 B) $15,377.2 C) $27,000 D) $12,000 E) $20,467.1

Expert Solution

Answer

C )

Explanation

Computation of Face Value of Bonds using FV Function in Excel:

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

Here,

FV = Face Value = ?

Rate = 20%/2 = 10%

Nper = 3*2 = 6 Periods

PMT = $1,200

PV = $20,467.11

Substituting the values in formula:

=fv(10%,6,1200,-20467.11)

FV or Future Value = $27,000

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