What is the purchase price of a 1000 bond that is maturing i

What is the purchase price of a $1,000 bond that is maturing in 20 years at 12% interest if the required rate of return is 15%?

Solution

There is no mention of the coupon payment frequency in the question. I am going to assume semi-annual payments. The coupon payments will be $1000*12%/2 = $60. There will be 40 of them plus the par value on the the 40th payment. You want to discount these cash flows with a nominal annual rate of 15% or 7.5% for 6 months. You can do this in a spreadsheet and get $811.08. You could also use Excel\'s PRICE function and get the same answer.