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Question

newuser2009
Newcomer

newuser2009 asked 8 months ago in Bonds

bond price

I am trying to calculate bond price using a yield curve but something doesnt look right

Yield Curve
0.5 yr = 1% (.01)
1.0 yr = 2%(.02)

Bond
FaceValue = 500
Coupon Rate 5%
Semiannual

Lets say maturity is one year

Formula I have is
PV = C * E^(-r*t) + ... (C+FV)*E^(-r*t)
C = 500*5% = 25

so in the end it works as

PV = 25 * E^(-.01*.5) + (500+25) * E^(-.02 * 1) = 539.479615

Does this make sense? I thought current price should somehow be below 500.

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Ari Weinberg
FiLife Contributor
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No time to do the math here, but if the coupon rate is 5% and this is a one year bond...you would expect the price to be above Par if 1 year is only paying 2%...

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