Question

(Related to Checkpoint 9.4) (Bond valuation) A bond that matures in 16 years has a $1000 par value. The annual coupon interest rate is 14 percent and the market's required yield to maturity on a comparable-risk bond is 16 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually?

Answer #1

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What would be the value of this bond if it paid interest
annually |
||||||

we have to use financial calculator to solve this problem | ||||||

Put in calculator | ||||||

FV | 1000 | |||||

PMT | 1000*14% | 140 | ||||

I | 16% | |||||

N | 16 | |||||

Compute PV | ($886.63) | |||||

therefore bond price = | $886.63 | |||||

What would be the value of this bond if it paid interest semiannually | ||||||

we have to use financial calculator to solve this problem | ||||||

Put in calculator | ||||||

FV | 1000 | |||||

PMT | 1000*14%/2 | 70 | ||||

I | 16%/2 | 8.00% | ||||

N | 16 | |||||

Compute PV | ($911.49) | |||||

therefore bond price = | $911.49 | |||||

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