A threeyear bond has an 80 coupon rate If the yield to matur

A three-year bond has an 8.0% coupon rate. If the yield to maturity on the bond is 5.88%, calculate the present value of the bond.

Solution

Let\'s Asseume Bond face Vale= $ 100 and Reedembale Value= Market Value of Bond Coupon rate = 8% Interest 8 YTM 5.88% Maturity 3 Year Formula of YTM YTM = Interest+ ( Reedemable Value- Market Price)/N)/ (Market price+Reedemable value)/2 5.88 = 8+ ( Reedemable Value- Market Price)/N)/ (Market price+Reedemable value)/2 2.28 = 8/Reedemable VAlue 2.28( Reddemable Value) = 8 Reedemable value = 350.8772 Present Value of Bond = Present value of Reedmeable value after 3 Y ear + cum PV of 3interest received in 3 Year 295.5999 + 21.44 317.0399