# Calculating value of bond

The bond has a facevalue of 40 and maturity of 20 years. It produces 0 coupon payments during the first 6 years but pays coupons of 2 annually during the last 14 years. The discount rate is 7%.

The formula looks like this;

$$P=\frac{CPN}{y}[1-\frac{1}{(1+y)^{N_1}}]+\frac{FV}{(1+y)^{N_2}}$$

Since the coupon only pays during the last 14 years, I tried $$N_1=14, N_2=20, CPN=2,y=0.07, FV=40$$ in the formula above. But that gave me an answer of $$P=27.83$$, but the answer should be $$P=21.99$$.

• The formula does not look right. The formula is for a bond that pays CPN during the first $N_1$ years, then 0 during the last $N_2-N_1$ years, which is the reverse order than what you want. Commented Jan 17, 2019 at 20:58

You question is saying that you have 14 payments coming starting in 6 years. This implies that the formula is as you have it, but replace both $$N_1$$ and $$N_2$$ with $$N_2-N_1$$ and discount that whole cashflow from T=6 to today. Accordingly, this is the equation you're looking for.
$$P=(1+y)^{-{N_1}} * [\frac{CPN}{y}(1-\frac{1}{(1+y)^{N_2-N_1}})+\frac{FV}{(1+y)^{N_2-N_1}}]$$