Question

BSW Corporation has a bond issue outstanding with an annual coupon rate of 6.6 percent paid quarterly and four years remaining until maturity. The par value of the bond is $1,000. Determine the fair present value of the bond if market conditions justify a 14 percent, compounded quarterly, required rate of return

Answer 1

Quarterly interest : 1000 *.066 *1/4 = 16.5                     [ 4quarters ina year]

Number of quarters = 4*4 =16

Quarterly market rate : 14/4 = 3.5%

Price : [PVA 3.5% ,16* INterest ]+[PVF 3.5%,16* Face value]

       = [12.0941* 16.5]    + [.57671*1000]

      = 199.55+ 576.71

       = $ 776.26

**Find Present value factor and annuity factor using financial calculator :

n= 16

i =3.5%

PMT =16.5

FV= 1000