Present value of a level coupon bond
levelcoupon(face, rate, couponrate, maturity)
face value of the bond
interest rate indicated by the bond
number of periods to maturity
The function levelcoupon calculates the present value at interest rate rate of a bond with face value face maturing in maturity period and paying at a rate couponrate per period.
The coupon rate is the rate that determines the payments that the bond gives. The rate is the interest rate used in calculating the present value of the bond.
If the bond never matures, one has a perpetuity. See Finance[perpetuity].
The present value of a bond that pays only its face value at maturity, but no coupon payments (pure discount bonds or zero level bonds), is calculated using the Finance[presentvalue] function.
Since levelcoupon used to be part of the (now deprecated) finance package, for compatibility with older worksheets, this command can also be called using finance[levelcoupon]. However, it is recommended that you use the superseding package name, Finance, instead: Finance[levelcoupon].
I hold a bond with face value of 1000 units with an annual coupon rate of 12%. The coupon is paid twice yearly. The maturity is in 3 years. What is the present value of the bond given that the interest rate is presently 10% compounded semi-annually.
There are 6 periods of half a year until maturity.
If the interest rate is the same as the coupon rate.
In other words, the bond is valued at par when the interest rate is equal to the coupon rate.
Now let the interest rate rise to 14%, compounded semi-annually.
This example shows that the value of the bond declines with rising interest rate.
The Finance[levelcoupon] command was introduced in Maple 15.
For more information on Maple 15 changes, see Updates in Maple 15.
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