# Bond Value

A bond, whose par value is Rs. 1,000, bears a coupon rate of 12 per cent and has a maturity period of 3 years. The required rate of return on the bond is 10 per cent. What is the value of this bond?
Solution
Annual interest payable = 1,000 * 12% = 120
Principal repayment at the end of 3 years = Rs. 1,000
The value of the bond
= 120 (PVIFA 10%, 3 yrs) + Rs. 1,000 (PVIF 10%, 3 yrs)
= 120 (2.487)+1,000 (0.751)
= 298.44 + 751
= Rs. 1,049.44

A bond, whose par value is Rs. 1000, bears a coupon rate of 12 per cent payable semi-annually and has a maturity period of 3 years. The required rate of return on bond is 10 per cent. What is the value of this bond?
Solution
Semi-annual interest payable = 1,000 x 12 per cent/2= 60
Principal repayment at the end of 3 years = Rs. 1,000
The value of the bond
= 60 (PVIFA 10%/2, 6 pds) + Rs. 1,000 (PVIF 10%/2, 6 pds) =
60 (5.0746) + 1,000 (0.746) = 304.48 + 746 = 1,050.48

The face value of the bond is Rs. 1,000, coupon rate is 11 per cent, years to maturity is seven years. The required rate of return is 13 per cent, and then the present value of the bond is
110 x PVIFA (13 per cent, 7) + 1,000 (PVIF 13 per cent, 7)
110(4.423)+1,000 (0.425) = 911.53
One year from now, when the maturity period will be six years, the present value of the bond will be
110 x PVIFA (13 per cent, 6) + 1,000 (PVIF 13 per cent, 6)
110 (3.998) + 1,000 (0.480) = 919.78
Similarly, when maturity period is 5, 4, 3, 2, 1 the Bond value will become 929.87, 940.14, 952.71, 966.48, 982.35, respectively.

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