A company invested in a 5 year bond issue of another company in 2000 carrying a coupon rate of 10% per annum. The interest payable at half-yearly rates and the principal repayable after 5 years in 2004 end. The current market yield has fallen to 9% during 2001. The investor company wanted to take advantage of the fall in market yiel;d by selling the bond to any willing buyer. Compute the value of the bond at the end of 2001.
Thanks in advance
Please help
If repayment amount of bond is 100, then it can be sold at 94.8421
Please show your calculations so that one can understand how to solve it.
it is 1/2 yearly interest. So we can discount the returns at 4.5% for 6 periods i.e. from 2002 to 2004. PVAF will be 5.1578
Bond Value = 100-5.1578 = 94.8421
Is it correct. I am not sure
to koolleo87 please show your detailed calucations.
my answer is wrong
100 * .7679= 76.79+
5*5.1579=25.7895
=102.5795
(10% coupen rate discounted at 9% interest rate)
koolleo brother your answer is incorrect. The correct answer is Rs.1025.79
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