Question

The Potomac Company’s bonds have a face value of $1,000, will mature in 20 years, and carry a coupon rate of 8 percent. Assume interest payments are made semiannually. (a) Determine the present value of the bond’s cash flows if the required rate of return is 15 percent. (b) Determine the present value of the bond’s cash flows if the required rate of return is 18 percent. (c) Is there a change in the present value in the above two examples? If yes, give a reason.

Answer #1

Present Value of cash flows is equal to the present value of coupon payments plus present value of redemption amount

(a) If required return is 15%

Semi-Annual Rate = 15%/2 = 7.5%

Number of periods = 20*2 = 40

Present Value = 1,000*8%*1/2*PVAF(7.5%, 40 periods) + 1,000*PVF(7.5%, 40 periods)

= 40*12.5944086 + 1,000*0.055419

= $559.20

(b)If rate is 18%

Semi-annual rate = 9%

Present Value = 1,000*8%*1/2*PVAF(9%, 40 periods) + 1,000*PVF(9%, 40 periods)

= 40*10.75736 +1,000*0.03183758

= $462.13

(c)Yes, present value has changed because the rate used for discounting has changed. Since investor has higher required return under (b), he will value bond less today

The Potomac Company’s bonds have a face value of $1,000, will
mature in 20 years, and carry a coupon rate of 16 percent. Assume
interest payments are made semiannually. Determine the present
value of the bond’s cash flows if the required rate of return is 15
percent.
Find the real return on the following investments:
Stock Nominal
Return Inflation
A 10%
3%
B 15%
8%
C
-5%
2%

a
company’s bond’s have a face value of 1,000. these bonds carry a 6%
coupon, pay interest semi annually and mature in 12 yrs: what is
the current vslue of these bonds if the yield to maturity is
8.16%?

Morin Company’s bonds mature in 3 years, have a par value of
$1,000, and make an annual coupon interest payment of $95. The
discount rate is 9.5 on these bonds. What is the bond’s value?

Morin Company’s bonds mature in 3 years, have a par value of
$1,000, and make an annual coupon interest payment of $85. The
discount rate is 9 on these bonds. What is the bond’s value?

Thatcher Corporation's bonds will mature in 17 years. The bonds
have a face value of $1,000 and an 11% coupon rate, paid
semiannually. The price of the bonds is $1,050. The bonds are
callable in 5 years at a call price of $1,050. Do not round off
intermediate. Round your answers to two decimal places.

Thatcher Corporation's bonds will mature in 11 years. The bonds
have a face value of $1,000 and an 9% coupon rate, paid
semiannually. The price of the bonds is $1,050. The bonds are
callable in 5 years at a call price of $1,050. Do not round off
intermediate. Round your answers to two decimal places.
a) What is their yield to maturity?
b) What is their yield to call?

Thatcher Corporation's bonds will mature in 17 years. The bonds
have a face value of $1,000 and an 11% coupon rate, paid
semiannually. The price of the bonds is $1,050. The bonds are
callable in 5 years at a call price of $1,050. Do not round off
intermediate. Round your answers to two decimal places.
What is their yield to maturity?
%
What is their yield to call?
%

O’Brien Ltd.’s outstanding bonds have a $1,000 par value, and
they mature in 23 years. Their nominal yield to maturity is 5.50%,
they pay interest semiannually, and they sell at a price of $1,230.
What is the bond’s nominal (annual) coupon interest rate?

A company's bonds mature in 8 years, have a face value of
$1,000, and make an annual coupon interest payment of
$30. The market requires an interest rate of 7% on these
bonds.
What is the current market price of the bond?

Mouse, Inc.’s outstanding bonds have a $1,000 par value, and
they mature in 5 years. Their yield to maturity in 9%, based on
semiannual payments, and the current market price is $853.61. What
is the bond’s annual coupon rate?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 9 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 21 minutes ago

asked 29 minutes ago

asked 29 minutes ago

asked 30 minutes ago

asked 36 minutes ago

asked 38 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago