Question

1. The JCS Company has two bonds outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L matures in 15 years, whereas Bond S matures in one year. One interest payment remains on Bond S. What will be the values of these bonds when the going rate of interest is (a) 5 percent and (b) 7 percent?

Answer 1

Req a: Rate of Interest -5%
Bond L
n = 15
I = 5%
Cashflows		Amount	PVF	Present value
Annual Interest		100	10.3797	1037.97
Principal		1000	0.481017	481.017
Price				1518.987
Bond S:
n = 1
I = 5%
Cashflows		Amount	PVF	Present value
Annual Interest		100	0.952381	95.2381
Principal		1000	0.952381	952.381
Price				1047.619
Req b: Rate if Interest - 7%
Bond L
n = 15
I =7%
Cashflows		Amount	PVF	Present value
Annual Interest		100	9.10791	910.791
Principal		1000	0.362446	362.446
Price				1273.237
Bond S:
n = 1
I = 7%
Cashflows		Amount	PVF	Present value
Annual Interest		100	0.934579	93.45794
Principal		1000	0.934579	934.5794
Price				1028.037