How Do I Calculate The Price To Pay For A Bond If: Bond Pays 5.0% Interest, Payable Quarterly Matures In 60 Months Need To Earn 12.0%?
Answer:
The face value of the bond is assumed to be 1000. The coupon rate of bond is 5%. The maturity time of bond is 60 months which means 60/12 = 5 years. The yield to maturity is given as 12%. Therefore, price can be calculated as follows:
Price = (0.05*1000)/(1+0.12)1 + (0.05*1000)/(1+0.12)2 + (0.05*1000)/(1+0.12)3 + (0.05*1000)/(1+0.12)4 + (0.05*1000)/(1+0.12)5 + (1000)/(1+0.12)5
Price = 747.7
This channel that the price of the bond currently will be 747.7.
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