Practical Examples of Bond Pricing
Example 1: Corporate Bond
Calculate Price of the bond from the following information:
| Attribute | Value |
|---|---|
| Face Value | $1,000 |
| Coupon Rate | 6% |
| Yield to Maturity | 5% |
| Time to Maturity | 5 years |
Solution:
Coupon Payment (C) = $1,000 × 6% = $60 per year
Number of periods (n) = 5 years
P = 57.14 + 54.42 + 51.83 + 49.36 + 47.01 + 783.53
P = $1443.29
Example 2: Government Bond
Calculate Price of the bond from the following information:
| Attribute | Value |
|---|---|
| Face Value | $10,000 |
| Coupon Rate | 3% |
| Yield to Maturity (YTM) | 2.5% |
| Time to Maturity | 10 years |
Solution:
Coupon Payment (C) = $10,000 × 3% = $300 per year
Number of Periods (n) = 10 years
P = 292.68 + 285.40 + 278.27 + 271.30 + 264.47 + 257.79 + 251.26 + 244.87 + 238.63 + 232.53 + 9516.81
P = $12,286.85
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