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Bond Pricing and YTM Calculations Guide

The document provides calculations for the current price of a bond with a par value of €1000, a coupon rate of 8.4%, and a YTM of 7.6%, resulting in a price of €1070.18. It also discusses a scenario where a bond with a par value of €1000 and a coupon rate of 8% experiences a YTM increase to 10%, detailing the bond pricing formula. The calculations include the present value of annuity and lump sum components for bond valuation.

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habibur.sh179
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6 views2 pages

Bond Pricing and YTM Calculations Guide

The document provides calculations for the current price of a bond with a par value of €1000, a coupon rate of 8.4%, and a YTM of 7.6%, resulting in a price of €1070.18. It also discusses a scenario where a bond with a par value of €1000 and a coupon rate of 8% experiences a YTM increase to 10%, detailing the bond pricing formula. The calculations include the present value of annuity and lump sum components for bond valuation.

Uploaded by

habibur.sh179
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Answer to question no.

Given Information,

Par value = € 1000

Years= 15

Coupon rate = 8.4%

YTM = 7.6% or 0.076

Coupon = (1000× 8.4% )

= 84

B = PV of Annuity + PV of Lump Sum


1
1−(1+𝑟)𝑛 𝐹𝑉
B=𝐶 [ ]+
𝑟 (1+𝑟)𝑛

1
1− 1000
(1+0.076)15×2
B= 84 [ ]+ (1+0.076)15
0.076

= 1070.18

The current price of the bond is 1070.18.

Answer to question no. 2

A bond that sells at par value has the same YTM as the coupon rate. Both bonds sell at par, so the
preliminary YTM of the bond is 8% equal to the coupon rate. Both bonds consist of semi-annual interest
payments.

Scenario 1, when YTM suddenly rises to 10%

Laurel INC.

Maturity = 2 Years

YTM = 10%

Par value = 1000

Coupon rate = 8%

Coupon = (1000 × 8%) /2 = 40

Semi-annual, m =2
B = PV of Annuity + PV of Lump Sum
1
1− 𝑟 𝑛×𝑚
𝐶 (1+ ) 𝐹𝑉
2
B= 𝑟 [ 𝑟 ]+ 𝑟
(1+ )𝑛×𝑚
2 2 2

1
1−
.10 2×2
40 (1+ ) 1000
2
B= .10 [ .10 ]+ .10 2×2
2 2 (1+ )
2

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