I am struggling in calculating bonds. Below is the requirements:
Assume interest rates for bonds today is 5% for an AAA rated bond. Calculate the price of the bond you have selected relative to the 5%. Is the bond selling at a premium or a discount? Why? Be sure to show how you arrived at your answer. What other factors may influence the value of a bond?
Here is what I have done so far:
Assume interest rates for bonds today is 5% for an AAA rated bond. Calculate the price of the bond you have selected relative to the 5%.
I selected the bond Goldman Sachs Group Inc., Non-callable, Semi-Annual coupon frequency payment
Yield to Maturity = -3.694%
Current Yield: 5.073
The semi-annual coupon rate is 2.5625 (5.125 / 2%). The assumed interest rate of 5% is displayed as .25 (5% / 2%). This is a 10 year bond so the number of periods is 20 since this is paid semi-annually (10 * 2).
PVo = ( coupon) (1 – [1/ (1 + r)ᵐ] ) + ( par value )
R (1 + r)ᵐ
PVo = (2.56) (1 – [1/(1 + .025)20]) + (1,000)
PVo = (2.56) (1-[1/(1.025)20]) + (1,000)
Here is the information on the bond:
GOLDMAN SACHS GROUP INC
As of 3-Dec-2015
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