bond has a maturity value of S1000 and matures in 15 years A

bond has a maturity value of S1000 and matures in 15 years A The coupon rate and discount rate both are equal to 6%. Interest is paid semi- annually. Find the value of the bond

Solution

When coupon rate and discount rate are equal bond will always trade at par value. Because if a company is offering 6% coupon on semi-annual bond and market is offering same interest rate of 6% then investor will be indifferent between buying from company or buying from market hence bond will always trade at par

using Financial calculator
PMT	30	(since coupon is 6% of 1000 but semi annual payment therefore we take 30)
N=	30	(since number of years is 15 but in 1 years payment is done twice periodicity will be=15*2=30)
I/Y=	3.00%	(Market interest will be adjusted for semi annual payment)
FV=	1000
Press CPT and PV
PV=	$1,000.00