Question

Hamilton ink bonds have a 6% coupon rate but interest is paid semi
annually and the bonds mature in eight years the par value is $1000
if your rate of return is 4% what is the value of the bond what is
the value if interest is paid annually?

What if the interest is paid annually what would the value of the
bond bond be?

Answer #1

Price of bond | = PV of coupon payments+PV of redemption price | |||||||

Coupon payments | = | 1000*(.06/2) | ||||||

= | $30.00 | |||||||

rate | = | 0.04/2 or 0.02 per half year | ||||||

Time | = | 8 yrs * 2=16 haif years | ||||||

Price of bond | = | 30*PVAF(2%,16 half year)+PVF(2%,16years)*1000 | ||||||

= | (30*13.5777)+(0.728445*1000) | |||||||

= | 407.33+728.445 | |||||||

= | $1135.77 |
|||||||

IF interest is paid annually | ||||||||

Coupon payments | = | 1000*.06 | ||||||

= | $60.00 | |||||||

rate | = | 0.04 | ||||||

time | = | 8 yrs * 2=16 haif years | ||||||

Price of bond | = | 60*PVAF(4%,8years)+1000*PVF(4%,8years) | ||||||

= | (60*6.7327)+(1000*0.73069) | |||||||

= | 403.9647+730.6902 | |||||||

= | $1134.655 |
|||||||

Note | ||||||||

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