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Investment advice and corporate finance
Module 12Investment Management and Corporate FinanceA five-year bond with a 6% annual coupon and a RM100 face value is priced to yield 5%. What is its price?
Price = Σ 6 ÷ 1.05^t (t = 1 to 5) + 100 ÷ 1.05^5 = 25.98 + 78.35 = RM104.33. Because the coupon (6%) is above the yield (5%), the bond trades at a premium. RM100.00 is the price only when coupon equals yield. RM95.90 is the price at a 7% yield, the wrong direction. RM108.35 adds the five coupons (RM30) to the discounted face value without discounting the coupons. Source: SIDC Module 12 Study Outline (Jul-Dec 2026) Section 5 Topic 9 Debt Financing; F. J. Fabozzi, Bond Markets, Analysis and Strategies (as at October 2026).
Expecting par whenever a bond is newly priced; price is par only when coupon equals yield.
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