A bond has a 10 percent coupon rate and a $100 face value

Accounting Aug 07, 2020

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?

Expert Solution

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

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