Bond Price and Future Value

[Ryan S]

It's unclear to me when to use a FV of 1000 or 100 when calculating the value of a bond. I feel I've come across different examples where the question requires you to use one or the other, but it's not given up front. Is there a way to know which to use? Hopefully my question is clear.

I noticed this in question #5 of 2010 practice test (Garp / BT version).

 

[IRENA BLAZINCIC]

Bond prices are quoted as a percentage of par, such as 99 or 101.5.

• For bond with par $1000, these refer to the percentage of $1000, and mean $990 and $1,015 per bond respectively.
• For bond with par $100, these refer to the percentage of $100, and mean $99 and $101.5 per bond respectively.

I always use FV=100 in calculation. Resulting PV is easily translated to equivalent PV for bond with par value $1000.
For example: coupon is 5% annual payment, 10 years maturity; yield=6%

1. FV = 100; PMT=5; N = 10; I/Y = 6 resulting PV = 92,639
2. FV = 1000; PMT=50; N = 10; I/Y = 6 resulting PV = 926,39

You should easily recognize the correct answer because all given choices will have the same order of magnitude.

 

[Ryan S]

Thanks Irena