a 7 commonwealth government bond has three years to maturity

a 7% commonwealth government bond has three years to maturity. given that the bond pays interest semi- annually ( i.e twice a year) And an interest payment has just been made,what is the present value of the bond if the market interest rate is 9% and the face value of the bond is $100000.

Solution

Ans. Present value of Bond is $94,842

7% Govt Bond has three year maturity

Face value of bond = $1,00,000

market Intrest Rate= 9%

Bond pays semi-annuallty

PV = 3.5% x 1,00,000x 1- (1 + 4.5%)^-6 / 4.5% + $1,00,000 / (1+4.5%)⁶

PV of Bond is = $94,842