If today is October 2002 what is the value of the following

If today is October 2002, what is the value of the following bond? An IBM Bond pays $115 every Sept for 5 years. In Sept 2007 it pays an additional $1000 and retires the bond. The bond is rated AAA (WSJ AAA YTM is 7.5%)

Solution

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate or yield / frequency of coupon in a year =

             7.500000

PMT = Payment = Coupon / frequency =

-$115.00

N = Total number of periods = Number of years x frequency =

5

FV = Future Value =

-$1,000.00

CPT > PV = Present Value of the instrument Bond=

$1,161.84

We are using AAA - YTM = 7.5 percent which is given in question.