Bond Valuation

[keep_running]

Interest = 9%
Semi annual coupon rate = 4%
FV = 5 million
N = 10 years
PV with 10 year horizon is 4,674,802.
When I compute the value for this bond 7 years from today, I did 4,674,802*(1.045)^14, but somehow this is the wrong answer. Isn’t it merely just sliding the present value 7 years into the future?

 

[cpk123]

PV=-4674802 (INflow, so negative)
N=14
PMT=-5000000*0.04=200000 (outflow, positive)
I/Y=4.5%
CPT FV
4871054?

 

[S2000magician]

Because there are coupons being paid.
Try this:

• PV = -4,674,802
• PMT = 200,000
• i = 4.5%
• n = 14
• Compute FV = 4,871,053

 

[breadmaker]

You’re part way to the bond value by rolling up the $4,674,802: you also have to deduct the accumulated value of coupons paid to date. This is known as retrospective accumulation.