Question

Hamilton, Inc. bonds have a coupon rate of 13 percent. The interest is paid semiannually, and the bonds mature in 13 years. Their par value is $1,000. If your required rate of return is 9 percent, what is the value of the bond? What is the value if the interest is paid annually?

**a.** If the interest is paid semiannually, the
value of the bond is

$ .

(Round to the nearest cent.)

**b.** If the interest is paid annually, the value
of the bond is

$ .

(Round to the nearest cent.)

Answer #1

a) Interest paid semiannually

Coupon = 13%*1000/2 = 65

Par Value = 1000

YTM semiannually = 9%/2 = 4.5%

Number of Periods = 13*2 = 26

Price of Bond = PV of Coupons + PV of Par Values
=65*(1-(1+4.5%)^-26/4.5%+ 1000/(1+4.5%)^26= 1302.93

b) Interest paid annually

Coupon = 13%*1000 = 130

Par Value = 1000

YTM = 9%

Number of Periods = 13*

Price of Bond = PV of Coupons + PV of Par Values
=130*(1-(1+9%)^-13/4.5%+ 1000/(1+9%)^13= 1299.48

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