Question

A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually. What is the value of the bond if your required rate of return is 5%?

**2.** A $1,000 par-value bond with 5 years of
maturity pays a 5% coupon rate, paid semi-annually. What is the
value of the bond if your required rate of return is 5%?

**3.** A $1,000 par-value bond with 5
years of maturity pays a 5% coupon rate, paid semi-annually. What
is the value of the bond if your required rate of return is 7%?

**4.** A $1,000 par-value bond
with 5 years of maturity pays a 5% coupon rate, paid semi-annually.
What is the value of the bond if your required rate of return is
3%?

Answer #1

Value of Bond is calculated as follows,

**Value of Bond
=(C*((1-(1+r) ^{-n})/r))+(F/(1+r)^{n})**

Where,

**C** means Coupon payments

**r** means TYM

**n** means no. of years till maturity

**F** means Face value

1. **Value Value of Bond
=(C*((1-(1+r) ^{-n})/r))+(F/(1+r)^{n})**

Value of Bond
=((1000*0.05)*((1-(1+0.05)^{-5})/0.05))+(1000/(1+0.05)^{5})

**Value of Bond =1000**

2. **Value Value of Bond
=(C*((1-(1+r) ^{-n})/r))+(F/(1+r)^{n})**

Value of Bond
=((1000*(0.05/2))*((1-(1+(0.05/2))^{(-5*2)})/(0.05/2)))+(1000/(1+(0.05/2))^{(5*2)})

**Value of Bond =1000**

3. **Value Value of Bond
=(C*((1-(1+r) ^{-n})/r))+(F/(1+r)^{n})**

Value of Bond
=((1000*(0.05/2))*((1-(1+(0.07/2))^{(-5*2)})/(0.07/2)))+(1000/(1+(0.07/2))^{(5*2)})

**Value of Bond =916.83**

4. **Value Value of Bond
=(C*((1-(1+r) ^{-n})/r))+(F/(1+r)^{n})**

Value of Bond
=((1000*(0.05/2))*((1-(1+(0.03/2))^{(-5*2)})/(0.03/2)))+(1000/(1+(0.03/2))^{(5*2)})

**Value of Bond =1092.22**

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