Im trying to learn bond valuations and working out problems I find online, but I come up with the wrong answer for this one.

Im buying a four year coupon bond for 963.54. The coupon is 5.172% paid quarterly. The bond is offered to me at the beginning of the 10th quarter. Im using a discount rate of 6.9%. I calculate sum the future values

(12.93)/(1.01725)^1 + (12.93)/(1.01725)^2 + ... + (12.93+1000)/(1.01725)^6 = 975.5756342

the answer is 977.97 without much explanation.

Can anyone see what I did wrong?

  • $\begingroup$ Your calculation is full of errors, for ex. how can there be 6 terms when the bond is a 4 year bond with quarterly coupons (should be 16 terms, no?). $\endgroup$
    – nbbo2
    Dec 5, 2017 at 15:08
  • $\begingroup$ There i missed some information in the problem statement. I am offered the bond at the start of Q10. So the bond has 6 payments I will receive. I think my issue is like what @vanguard2k has stated below. But, I have not had a chance to study it again. I will look again this evening. $\endgroup$
    – ARs
    Dec 5, 2017 at 18:50
  • 1
    $\begingroup$ I updated the question. its now stated correctly. $\endgroup$
    – ARs
    Dec 5, 2017 at 18:55

1 Answer 1

  • You have to discount the future cash flows with your discount rate (= yield)
  • The coupon is paid quarterly, yet you discount annually. You will miss all other coupons in your calculation.

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