Question

Find the value of a bond maturing in 6 years, with a $1,000 par value and...

Find the value of a bond maturing in 6 years, with a $1,000 par value and a coupon interest rate of 14% (7% paid semi-annually) if the required return on similar-risk bonds is 17% annual interest (8.5% paid semi-annually).

The present value of the bond is?

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Answer #1

Answer: $7,720.39

Calculations:

Issued at Discount
Face value $ 1,000
Coupon Rate 14%
Market rate 17%
Tenure 6 years
Tenure Semi annualy 12 years

*Interest payment = $1000 x 10% = $100

Present value of interest payment $ 7,344.69
[$1000 x 7.34469 PV annuity factor at 8.5% for 12 years]
Prsent value of face value $ 375.70
[$1,000 x 0.37570 PV factor at 8.5% for 12 years]
Issue price $ 7,720.39

Note: The present value of annuity factor taken rounded to 5 decimals.

*Answer was taken rounded to two decimals

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