A bond was issued 3 years ago at a coupon rate of 6%. Since then, interest rates have decline to 4%. The bond matures 20 years from today. Compute the current market value of this bond.
I need to know were I’m going wrong. I keep getting $1000. This is my calculation:
N=20
I/YR=4
PMT=40
FV=1000
Finance Question: I no the answer is $1271.81 but how do I input it into the calculator?
March 22nd, 2010 by Leave a reply »
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let me get back with an answer. Not sure.
Payment is not $40, but $60. Coupon rate determines the interest payment. That’s why the price of the bond has risen to $1271.81, a premium.
Actually the answer is PV of investment with
rate 4%
for nper 20 and
payment is $60
the FV is $1000
If you enter these 4 elements to get the PV the answer should be -$1271.806527 which is the amount you will pay/invest
Manually you can also get the same PV with the following
=60*(1+0.04)^-1 +60*(1+0.04)^-2 +60*(1+0.04)^-3 +60*(1+0.04)^-4 +60*(1+0.04)^-5 +60*(1+0.04)^-6 +60*(1+0.04)^-7 +60*(1+0.04)^-8 +60*(1+0.04)^-9 +60*(1+0.04)^-10 +60*(1+0.04)^-11 +60*(1+0.04)^-12 +60*(1+0.04)^-13 +60*(1+0.04)^-14 +60*(1+0.04)^-15 +60*(1+0.04)^-16 +60*(1+0.04)^-17 +60*(1+0.04)^-18 +60*(1+0.04)^-19 +60*(1+0.04)^-20 +1000*(1+0.04)^-20