The current price of a bond is found by calculating the sum of the present value of its remaining coupons and principal. However, since we’re accounting for semi-annual coupon payments, we’ll have to tweak this formula slightly. In our example, we have a bond which has a face value of £1000, a coupon rate of 10%, 4 years to maturity and a yield to maturity of 5%. We’re also going to assume that interest payments are semi-annual, in other words paid twice a year. In this video, we will first cover how to use the PV function to calculate the price of the bond and then demonstrate that the calculation is correct by calculating the answer manually.
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[email protected]Overview: (0:00)
Present Value Function: (0:58)
Manual Calculation: (2:15)