Question

Quantitative Problem: Potter Industries has a bond issue outstanding with an annual coupon of 6% and a 10-year maturity. The par value of the bond is $1,000. If the going annual interest rate is 9%, what is the value of the bond? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

Quantitative Problem: Potter Industries has a bond issue outstanding with a 6% coupon rate with semiannual payments of $30, and a 10-year maturity. The par value of the bond is $1,000. If the going annual interest rate is 9%, what is the value of the bond? Do not round intermediate calculations. Round your answer to the nearest cent.

$

Answer 1

  

_______________________________

_______________________________

Answer a)

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 9%

And n is the no of Compounding periods 10 years

Coupon 6%

=

= 807.47

Answer b)

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 9% / 2 = 0.045

And n is the no of Compounding periods 10 years * 2 = 20

Coupon 6% / 2 = 0.03

=

= 804.88

NOTE: Do upvote the answer, if this was helpful.

NOTE: Please don't downvote directly. In case of query, I will solve it in comment section in no time.