Question

?(Bond valuation?)Calculate the value of a bond that will mature in 15 years and has a ?$1,000 face value. The annual coupon interest rate is 11 ?percent, and the? investor's required rate of return is 12 percent. (Give answer to two decimal points)

Answer 1

Solution:

F = Face value =	$1,000.00
C = Coupon rate =	11.00%
R = Yield = Required Rate of return = 12% =	12.00%
N = Number of coupon payments till maturity =	15
Formula for bond value = (C x F x ((1-((1+R)^-N)) / R) + (F/(1+R)^N)
Bond Value = (11%*1000*((1-((1+12%)^-15))/12%)+(1000/(1+12%)^15))
Bond value =	$931.89

Alternate solution using financial calculator:

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate or yield =	12
PMT = 11% x FV =	-110
N =	15
FV =	-1000
PV = Value of bond =	$ 931.89