Question

On April 1^st, Year 1, DTI Company issued a $15,000 face value Bond. The 4-year term bond had a stated rate rate of 7% while the market (effective) rate of interest was 5%. Interest payments are only made once a year. DTI Company's year end is 12/31.

Based on the above, what should the bond sell for?

Answer 1

Face Vlaue		15000$
	Interest @ 15K $	PV Factor @ 5%	PV Value
Year 1	787.5	0.9524	750
Year 2	1050	0.9070	952
Year 3	1050	0.8638	907
Year 4	1050	0.8227	864
Year 4	15000	0.8227	12341
P=	750 + 952 + 907 + 864 + 12341
P=	15814
Sumof All=	Interest / (1/1 + R)^1
	Interest / (1/1 + R)^2
	Interest / (1/1 + R)^3
	Interest / (1/1 + R)^4
	Redeemed Value / (1/1 + R)^4