Formulas for Bonds

Price of a bond

P = C (1 - 1 ) + FV
(1+i)n (1 + i )n
i

YTM

YTM = C + FV - MP
n
FV + MP
2

YTC = C + CP - MP
n
CP +MP
2
Bond Problems

1) A bond with 3 years to maturity has a face value of Rs. 1,000. The bond
pays a 9 percent semiannual coupon, and the bond has a 10 percent nominal
yield to maturity.
What is the price of the bond today?

2) A corporate bond matures in 4 years. The bond has an 9 percent semiannual

coupon and a par value of Rs. 1,000. The bond is callable in two years at a call
price of Rs. 1,040. The price of the bond today is Rs. 1,100. What are the
bond’s yield to maturity and yield to call? Will the bond be called if interest
rates do not change?
3) A corporate bond with a Rs. 1,000 face value pays a Rs. 55 coupon every six
months. The bond will mature in 4 years, and has a nominal yield to maturity
of 10 percent. What is the price of the bond ?

4) A corporate bond has a face value of Rs. 1,000, and pays a Rs. 40 coupon
every six months (that is, the bond has a 8 percent semiannual coupon). The
bond matures in 5 years and sells at a price of Rs. 1,100. There is a call option
after 2 years at a price of Rs. 1050. What is the bond’s nominal yield to maturity?
What is the yield to call? Will the bond be called if interest rates do not change?