A 15 year, $1,000 par value bond has an 8% semi-annual payment coupon. The bond currently sells for $925. if the yield to maturity remains at it's current rate, what will the price be 5 years from now?

Question

Business

Karsyn York

21 February, 11:34

A 15 year, $1,000 par value bond has an 8% semi-annual payment coupon. The bond currently sells for $925. if the yield to maturity remains at it's current rate, what will the price be 5 years from now?

+3

Answers (1)

Know the Answer?

Donna Savage · Answer 1

First, find the YTM of the bond using the following inputs on a financial calculator;

N = 15*2 = 30 semiannual payments

PV = - 925

Semiannual coupon payment; PMT = (8%/2) * 1000 = 40

FV = 1,000

then CPT I/Y = 4.458%

Annual rate = 4.458% * 2 = 8.92%

Next, use the YTM above and change the time to maturity to (15-5) = 10 years or 20 semiannuals. Therefore, the price at year 5 will be as follows;

N = 10*2 = 20

Semiannual coupon payment; PMT = 40

FV = 1,000

Semiannual rate; I/Y = 4.458%

then CPT PV = 940.206

The price at year 5 will be $940.21