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how to calculate the bond price with deferred coupon on BI calculator?

  • This topic has 1 reply, 2 voices, and was last updated Jul-19 by kalalah.
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    • mal
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      Eldora Ltd. recently issued deferred-coupon bonds for which no coupon payments will be paid in the first two years of the bond’s life. Regular annual coupon payments at a rate of 9% will then be made until the bonds mature at the end of six years. The spot rates for various maturities are given in the following table.

      Time to Maturity
      Spot Rate
      1 year . 8.0%
      2 years 7.5%
      3 years 7.0%
      4 years 6.5%
      5 years 6.0%
      6 years 5.5%

      On the basis of these spot rates, the price of the bond today is closest to:

      116.24.
      108.20.
      100.12.

    • kalalah
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      I got C – 100.12.

      Price of bond = NPV of 4 coupon payments in years 3-6 + NPV of bond capital
      = 9/(1.055^6) + 9/(1.060^5) + 9/(1.065^4) + 9/(1.070^3) + 100/(1.055^6)
      =100.119

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