Assume that a long term government bond has 6 years left to maturity. The bond pays 7% coupon payments per semi-annum and yield to maturity is set as 10%. What should be the value of this bond today?

Value of bond:

~ Since the bond pays semi-annual coupon, the coupon and yield to maturity will be divided by 2, and time to maturity will be multiplied by 2.

~ Input the following in financial calculator:

FV = Face value = $1000

N = time to maturity = 6x2 = 12

PMT = coupon = 1000x7%/2 = $35

I/Y = yield to maturity = 10%/2 = 5%

Then press "CPT", "PV", we get -

PV = Price of bond = $867.05

Answer:

Value of bond today should be = $867.05