A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. If the yield to maturity remains at its current rate, what will the price be 5 years from now

$ 930.20  

Explanation:

We need to first of all determine the yield to maturity using excel rate function:

=rate(nper,pmt,-pv,fv)

nper is the number of annual coupons i.e 25

pmt is the annual coupon=face value*coupon rate=$1000*8.5%=$85

pv is the current market price of $925

fv is the face value of $1000

=rate(25,85,-925,1000)=9.28%

In 5 years time,the bond would have 20 years remaining to maturity, as a result, only 20 years coupon would be left to be paid.

The formula for bond price is excel pv function given below:

=-pv(rate,nper,pmt,fv)

=-pv(9.28% ,20,85,1000)=$ 930.20  

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