Question

Suppose you have a bond with 4 years to maturity. The face value of the bond is $1,000 and its coupon rate is 5 percent per year (annual payments). When the required yield (YTM) on this bond is 6 percent (compounded annually), what is the current price of the bond

Answer 1

$965.35

Step-by-step explanation:

For determining the current price of the bond we use the present value formula i.e to be shown in the spreadsheet

Given that,

Future value = $1,000

Rate of interest = 6%

NPER = 4 years

PMT = $1,000 × 5% = $50

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying this formula, the current price of the bond is $965.35