Question

Calculate the fair present values of the following bonds, all of which pay interest semiannually, have a face value of $1,000, have 10 years remaining to maturity, and have a required rate of return of 11 percent.

The bond has a 5.4 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

The bond has a 7.4 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

The bond has a 11 percent coupon rate.

Answer 1

Value of Bond is equal to the present value of all coupon payments as well as the principal amount

The bond has a 5.4 percent coupon rate,

Value = 1,000*5.4%/2*PVAF(5.5%, 20 periods) + 1,000*PVF(5.5%, 20 periods)

= 27*11.95038 + 1,000*0.34273

= $665.39

The bond has a 7.4 percent coupon rate,

Value = 1,000*7.4%/2*PVAF(5.5%, 20 periods) + 1,000*PVF(5.5%, 20 periods)

= 37*11.95038 + 1,000*0.34273

= $784.89

The bond has a 11 percent coupon rate,

Value = 1,000*11%/2*PVAF(5.5%, 20 periods) + 1,000*PVF(5.5%, 20 periods)

= 55*11.95038 + 1,000*0.34273

= $1000.00