Identify the payment stream
The first two years each pay a coupon of 5. Year three pays the final coupon of 5 and principal of 100, so that final cash flow is 105. Returning principal is not an extra coupon and must not be omitted.
Discount each payment at 6%
The payments arrive one, two and three years from the pricing date. Use powers of 1.06 that match those times. Add the discounted amounts, keeping rounding until the final presentation.
The example prices at a coupon date with annual compounding.
| Year | Cash flow | Present value |
|---|---|---|
| 1 | 5 | 4.717 |
| 2 | 5 | 4.45 |
| 3 | 105 | 88.16 |
Check the direction and scope
The coupon rate is 5%, below the 6% yield, so a price below face value is consistent with the fixed-cash-flow model. The payment stream is unchanged if the required yield changes; only the discounting changes. An accrued-interest adjustment or an irregular first period would require additional timing information.