Interest = 9%
Semi annual coupon rate = 4%
FV = 5 million
N = 10 years
PV with 10 year horizon is 4,674,802.
When I compute the value for this bond 7 years from today, I did 4,674,802*(1.045)^14, but somehow this is the wrong answer. Isn’t it merely just sliding the present value 7 years into the future?
PV=-4674802 (INflow, so negative)
PMT=-5000000*0.04=200000 (outflow, positive)
Because there are coupons being paid.
- PV = -4,674,802
- PMT = 200,000
i = 4.5%
n = 14
- Compute FV = 4,871,053
You’re part way to the bond value by rolling up the $4,674,802: you also have to deduct the accumulated value of coupons paid to date. This is known as retrospective accumulation.