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Homework answers / question archive / A bond has a 10 percent coupon rate and a $100 face value
A bond has a 10 percent coupon rate and a $100 face value. Interest is paid semi-annually and the bond has 20 years to maturity. If investors require a 12 percent pa yield, what is the bond's value?
We can calculate the value of bond by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Value of the bond
Rate = 12%/2 = 6% (semiannual)
Nper = 20*2 = 40 periods (semiannual)
Pmt = Coupon payment = $100*10%/2 = $5
FV = $100
Substituting the values in formula:
= -pv(6%,40,5,100)
= $84.95
