Bond Valuation Question and Answers

Bond Valuation Practice Problems

1. The $1,000 face value ABC bond has a coupon rate of 6%, with interest paid semi-annually, and matures in 5 years. If the bond is priced to yield 8%, what is the bond's value today?

• FV = $1,000
• CF = $60/2 = $30
• N = 5 x 2 = 10
• i = 8%/2 = 4%
• PV = $918.89

1. The $1,000 face value EFG bond has a coupon of 10% (paid semi-annually), matures in 4 years, and has current price of $1,140. What is the EFG bond's yield to maturity?

• FV = $1,000
• CF = $100/2 = $50
• N = 4 x 2 = 8
• PV = $1,140
• i = 3%
• yield-to-maturity = 3% x 2 = 6%

1. The HIJ bond has a current price of $800, a maturity value of $1,000, and matures in 5 years. If interest is paid semi-annually and the bond is priced to yield 8%, what is the bond's annual coupon rate?

• PV = $800
• FV = $1,000
• N = 5 x 2 = 10
• i = 8% / 2 = 4%
• CF = $15.34
• Coupon = $30.68 per year or 3.068%

1. The KLM bond has a 8% coupon rate (with interest paid semi-annually), a maturity value of $1,000, and matures in 5 years. If the bond is priced to yield 6%, what is the bond's current price?

• CF = $40
• FV = $1,000
• N = 10
• i = 6%/2 = 3%
• PV = $1,085

1. The NOP bond has an 8% coupon rate (semi-annual interest), a maturity value of $1,000, matures in 5 years, and a current price of $1,200. What is the NOP's yield-to-maturity?

• CF = $40
• FV = $1,000
• N = 5 x 2 = 10
• PV = $1,200
• i = 1.797%
• yield-to-maturity = 1.797% x 2 = 3.594%