Bonds - SS3 Mathematics Lesson Note

A bond is a formal long-term contract between a borrower/debtor/bond issuer (usually corporation or government) and a lender/creditor/bond holder. The bond holder is paid an interest (coupon) on the face value (principal) of the bond at a specified interest rate called the bond rate. On the maturity date of the bond, the full principal is paid back.

Example 10 What is the maturity value of a \(N220,000\) bond which pays \(15\%\) per annum interest rate over a period of \(5\frac{1}{2}\) years?

Solution

\[Bond\ interest\ (coupon) = \ 220000 \times 0.15 \times 5.5 = N181,500\]

\[Maturity\ value = N220,000 + N181,500 = N401,500\]