E12 Price of a Bond

Question 1

what is a bond intuitively?

Answer 1

A bond is a type of loan. Bonds are issued by governments and
corporations to borrow money.

Question 2

what does the notation P, F, r, Fr, C, g, i, n, K, for bonds mean?

Answer 2

P – price of the bond
F – face amount or par value
r – coupon rate per payment period
Fr – amount of each coupon payment
C – redemption value of the bond
g – modified coupon rate (g = Fr/C)
i – yield rate of the bond
n – number of coupon payments
K – present value of the redemption value

Question 3

what is the basic formula for the price of a bond?

Answer 3

P = Fr a angle n + Cv^n

Question 4

what is the premium/discount formula?

Answer 4

P = C + (Fr - Ci) a angle n

Question 5

what is makehams formula?

Answer 5

P = K + g/i * (C-K)