I got this problem wrong, I don't really know what to do.

A 10% bond with semi-annual coupons and face 11,000 matures 4 years after issue. What is the amount of principal repaid in the 5th coupon, if the nominal annual yield rate is 8%, compounded semi-annually?

The equation I have for principal adjustment is $g-i[1+(g-i)* \frac{1-v^{n-t+1}}{i}]=(g-i)v^{n-t+1}$

$F=11,000, r=.1/2=.05, i=.08/2=.04, n=8, t=5, Fr=550,$

$C=F(1+i)=11,000*1.04=11,440, g=(F/C)(r)=(11,000/11,440)(.05)=.0480769231$

$550*(.0480769231-.04)* \frac{1}{1.04}^4=3.797303233$

However, this is super wrong. Anybody know what I did to mess it up?


The problem was g. g should have been equal to r, because F was supposed to be equal to C.


$11,000(.05-.04)*1.04^{-4} \approx 94.03$

| cite | improve this answer | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.