In 2016 Beth purchased a 10-year, 3.20% p.a. semi-annual paying coupon bond with a Face Value (FV) of $2 000 000, as she was attracted by the fixed income stream in order to fund her retirement expenses. a) What is the price of this bond in 2020 (6 years remaining) at a current market interest rate of 0.30% p.a.? Show formula, variables, calculation and a concluding statement in your response.
In 2016 Beth purchased a 10-year, 3.20% p.a. semi-annual paying coupon bond with a Face Value (FV) of $2 000 000, as she was attracted by the fixed income stream in order to fund her retirement expenses.
a) What is the price of this bond in 2020 (6 years remaining) at a current market interest rate of 0.30% p.a.?
Show formula, variables, calculation and a concluding statement in your response.
Face value or maturity value of the bond (FV) = $2,000,000
Semiannual coupon amount (C) = $32,000 (i.e. $2,000,000 * 0.032 / 2)
Semiannual yield to maturity (r) = 0.0015 (i.e. 0.003 / 2)
Semiannual maturity period (n) = 12 (i.e. 6 years * 2)
Price of the bond (P0) = ?
Price of the bond is discounted value of all the future coupon payments and maturity value.
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