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 8.4%, what is the value of the bond? Round your answer to the nearest cent. Do not round intermediate calculations.
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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 8.4%, what is the value of the bond? Round your answer to the nearest cent. Do not round intermediate calculations.
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Answer 1

1.The question is solved with the help of a financial calculator.

Par value= future value= $1,000

Annual coupon rate= 6%

Coupon payment= 0.06*1,000= $60

Time= 10 years

Yield to maturity= 8.40%

The value of the bond is calculated by entering the below in a financial calculator:

FV= 1,000; N= 10; PMT= 60; I/Y= 8.40

Press CPT and I/Y to calculate the value of the bond.

The value of the bond is $841.82.

2. The question is solved with the help of a financial calculator.

Par value= future value= $1,000

Annual coupon rate= 6%/2= 3%

Coupon payment= 0.03*1,000= $30

Time= 10 years*2= 20 semi-annual periods

Yield to maturity= 8.40%/2= 4.20%

The value of the bond is calculated by entering the below in a financial calculator:

FV= 1,000; PMT= 30; N= 20; I/Y= 4.20

Press CPT and I/Y to calculate the value of the bond.

The value of the bond is $839.77.