2.16 Fixed Income Securities: Dollar Price & Yield-to-Maturity (“Long” Calculation Illustration)
Exercises
The foregoing bond calculation may also be accomplished the “long” way, which shall provide certain analytic advantages (especially in connection with bond “duration,” which will be discussed later).
Definition:
The “price” of a bond is equal to the present value of its future cash in-flows.
Example:
| Coupon | .10 | |
| Term-to-Maturity | 5 years (semi-annual) | |
| Discount Rate (Y-T-M) | Case 1: .10, Case 2: .12 |
| Period | Coupon | PVF @ .05 | PVCF | PVF @ .06 | PVCF |
|---|---|---|---|---|---|
| 1 | |||||
| 2 | |||||
| 3 | |||||
| 4 | |||||
| 5 | |||||
| 6 | |||||
| 7 | |||||
| 8 | |||||
| 9 | |||||
| 10 | Coupon | ||||
| Face Value | |||||
| Total |
