Question

(Bond valuation​) ​Hamilton, Inc. bonds have a coupon rate of 15 percent. The interest is paid​ semiannually, and the bonds mature in 12 years. Their par value is ​$1,000. If your required rate of return is 11 ​percent, what is the value of the​ bond? What is the value if the interest is paid​ annually? a. If the interest is paid​ semiannually, the value of the bond is ​$___?

Answer 1

Price of the bond = PV of all the Coupon payments + PV of the Par value of the bond

We will use BA 2 Plus Financial calculator to find the Price of the bond if the interest is paid semiannually:

N(number of coupon payments) = 12*2 = 24

I/Y(Interest rate per period) = 11%/2 = 5.5%

FV(Face Value) = $1000

PMT(Coupon payment per period) = (15%*$1000)/2 = $75

CMPT PV

Price of the semiannual bond = $1,263.0340

We will use BA 2 Plus Financial calculator to find the Price of the bond if the interest is paid annually:

N(number of coupon payments) = 12

I/Y(Interest rate per period) = 11%

FV(Face Value) = $1000

PMT(Coupon payment per period) = (15%*$1000) = $150

CMPT PV

Price of the annual bond = $1,259.6942