Question

2) Nanotech, Inc., has a bond issue maturing in seven years that is paying a coupon rate of 9.5 percent (semiannual payments) , and the face value of the bond is $1,000. The company wants to retire a portion of the issue by buying the securities in the open market. If it can refinance at 8 percent, how much will Nanotech pay to buy back its current outstanding bonds? On Excel

Answer 1

Sol:

Face value (FV) = $1,000

Coupon rate = 9.5%, Semiannual coupon rate = 9.5 / 2 = 4.75%

Coupon payment (PMT) = 1000 * 9.5% = $95, Semiannual coupon amount = 95 / 2 = $47.50

Maturity period (NPER) = 7 years, Semiannual = 7 * 2 = 14

Current market rate = 8%, Semiannual = 8 / 2 = 4%

To compute how much Nanotech will have to pay to buy back its current outstanding bonds we can use PV function in excel:

FV	1,000
PMT	47.5
NPER	14
Rate	4%
Present value	$1,079.22

Therefore the amount Nanotech will have to pay to buy back its current outstanding bond will be $1,079.22

Working