Check out some similar questions!

dastew55 · Mar 10, 2008, 05:47 PM

How do you compute the current price of bonds?

morgaine300 · Mar 13, 2008, 12:47 PM

By figuring out the present value of the bond face value, and the present value of the series of interest payments, and adding them together. There are several methods that can be used to figure this out, such as charts, equations, financial calculator and Excel. Without knowing what method you're using, I don't think it would be productive to just explain one of them and hope it's the one you're supposed to be using. (Not to mention that equations can be different in different books, using different variables to represent things, and financial calculators can also work differently.)

i.e. more detail would be needed to truly answer this.

Lextechs · Mar 26, 2008, 10:07 AM

I am using excel to figure out this $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is:
a. 7 percent.
b. 10 percent.
c. 13 percent.

When I do that total of r the 10% and 13% the value is lower shouldn't it be higher?

morgaine300 · Mar 27, 2008, 12:22 AM

Originally Posted by Lextechs

When i do that total of r the 10% and 13% the value is lower shouldn't it be higher?

Sorry to say I can't really help with Excel, cause I don't do them that way. (I can do them with equations faster than I can open Excel and find the functions.)

But I can tell you that the values should be lower. The bonds are paying only 8% which makes them worth less than a yield of 10/13%. So this would be appropriate, yes.

Even though I can't help with Excel, if you give me your answers, I or something else can tell you if you're correct or not.

aims · May 21, 2008, 08:07 PM

Ok. How would you solve this using an equation? I am unable to find anyone who knows the equation.

morgaine300 · May 22, 2008, 05:06 PM

Can you please next time start your own post.

The basic time value of money equations (not including simple interest) are:

$FV=PV(1+i)^n$

Used to find the future value (maturity value) of a lump sum. Can also be used to solve for the present value (principal) by using a little algebra.

$FV=Pmt\,\left(\frac{(1+i)^n-1}i\right)$

$PV=Pmt\,\left(\frac{1-(1+i)^{-n}}i\right)$

Used to find the future value or present value of an annuity, i.e. a series of payments. Again, can also be used to find the payment itself using algebra.

Where
i = interest rate per compounding period.
n = number of compounding periods.

That is,

$i = \frac{r}m$ and $n = tm$ , where $m=$ the number of times it compounds per year. So quarterly compounding, m = 4. Monthly compound, m = 12. Etc.

So, for instance if you have semi-annual interest payments of $500 for 10 years, at 8%, and you want the present value of those payments, then:

$i=\frac{.08}2=\,.04$

$n=2(10)=20$

$PV=500\,\left(\frac{1-(1+.04)^{-20}}{.04}\right)$

= 6795.16