4-6: Calculate the price of a 5-year, 1,000 per value bond that makes semiannual payments, has a coupon rate 8%, and offers a yield to maturity of 7%

Finance Sep 01, 2020

4-6: Calculate the price of a 5-year, 1,000 per value bond that makes semiannual payments, has a coupon rate 8%, and offers a yield to maturity of 7%.

Expert Solution

Computation of Price of Bond using PV Function in Excel:

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

Here,

PV = Price of Bonds = ?

Rate = Yield to Maturity = 7%/2 = 3.5% compounded semiannually

Nper = Number of Periods to Maturity = 5 Years*2 = 10 Periods

PMT = Periodic Coupon Payment = $1,000*8%/2 = $40

FV = Face Value = $1,000

Substituting the values in formula:

=-pv(3.5%,10,40,1000)

PV or Price of Bonds = $1,041.58

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