1 answer

If a 7% (coupon rate), 5-year bond with a par of $1000 is currently worth $960.07,...

Question:

If a 7% (coupon rate), 5-year bond with a par of $1000 is currently worth $960.07, how much will it be worth one year from now if the interest rate remains constant?


Answers

YTM of Bond is the Rate at which Pv of cash Inflows are equal to Bond Price today.

Year CF PVF @8% Disc CF
0 $ -960.07     1.0000 $ -960.07
1 $      70.00     0.9259 $    64.81
2 $      70.00     0.8573 $    60.01
3 $      70.00     0.7938 $    55.57
4 $      70.00     0.7350 $    51.45
5 $      70.00     0.6806 $    47.64
5 $ 1,000.00     0.6806 $ 680.58
NPV $       0.00

Thus YTM is 8%.

Price after 1 Year = PV of Future CFs from it.

Year CF PVF @8% Disc CF
1 $      70.00     0.9259 $    64.81
2 $      70.00     0.8573 $    60.01
3 $      70.00     0.7938 $    55.57
4 $      70.00     0.7350 $    51.45
4 $ 1,000.00     0.7350 $ 735.03
Price of Bond after 1 year $ 966.88
.

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