Question

Calculate the fair present values of the following bonds, all of which pay interest semiannually, have a face value of $1,000, have 8 years remaining to maturity, and have a required rate of return of 14 percent.

A). The bound has a 6.6 percent coupon rate. (Don’t round intermediate calculations, round answer to decimal places) B). The bond has a 8.6 percent coupon rate. (Don’t round intermediate calculations, round answer to 2 decimal places) C). The bond has a 14 percent coupon rate (Don’t round intermediate calculations)

Answer 1

Use PV function in EXCEL to find the price of bonds

=PV(rate,nper,pmt,fv,type)

Please remember that the payemnts are semi-annual

rate=required rate/2=14%/2=7%

nper=8 years*2=16

fv=face value=1000

A)If coupon rate=6.6%

pmt=(coupon rate*face value)/2=(6.6%*1000)/2=66/2=33

=PV(7%,16,33,1000,0)=$650.47

Price of the bond=$650.47

B) If coupon rate=8.6%

pmt=(8.6%*1000)/2=86/2=43

=PV(7%,16,43,1000,0)=$744.94

Price of the bond=$744.94

C) If coupon rate=14%

pmt=140/2=70

=PV(7%,16,70,1000,0)=$1000

Price of the bond=$1000