For a 15-year bond which pays $500 every 6 months and its face value is $1000. If required rate of return is 10, what is the bond’s value. The answer is 10000. How do you calculate? I tried with calculator n=30 i=5 pmt =500 FV= 10000 I got present value -7917. What is wrong with it?

I suggest you double check your numbers. my computations are correct. You may have made a mistake when inputting the numbers in your calculator. Maybe you need to check your calculator settings. what do you use?

i is 10 not 5…

well, shouldn’t i be 5 because the bond is paid semi-annually?

You’re using 1000 as FV instead of 10,000

kguizo Wrote: ------------------------------------------------------- > well, shouldn’t i be 5 because the bond is paid > semi-annually? Oops I was wrong

I got $7917 if I typed the following: 1000 FV 5 i 30 n 500 PMT PV I got $10000 if I typed the following: 10000 FV 5 i 30 n 500 PMT PV

You do not even need to calculate since coupon rate is also 5%. So it should be selling at par.

If you think the semiannual rate as 4.881%, then the PV is $10187

Thanks. I typed $1000 instead of $10000 before. I should be careful next time. Still I am surprised that PV is 7917 vs 10000(difference being small) for changing of one digit(10,000 to 1,000 of FV). I guess it is due to 15 years of duration.

ymc Wrote: ------------------------------------------------------- > If you think the semiannual rate as 4.881%, then > the PV is $10187 ymc, my understanding is: if the effective annual yield (EAY) is 10%, compounded semiannually, then your semiannual rate would be correct. However, this 10% quote is a bond-equivalent yield (BEY), which is a quoting convention that takes the effective semiannual rate and doubles it to approximate the annual rate. So in this case, the semiannual rate is 5% (= 10/2) and the EAY, which we don’t need for the problem, is 10.25% (= 1.05^2 - 1). Your LI books should address this material.