Any help would be appreciated: A tax-exempt bond was recently issued at an annua

Question

Any help would be appreciated: A tax-exempt bond was recently issued at an annual 8 percent coupon rate and matures 20 years from today. The par value of the bond is $1,000. If a required market rate is 8 percent, what is the market price of the bond? If required market rates fall to 5 percent, what is the market price of the bond? Any help would be appreciated: A tax-exempt bond was recently issued at an annual 8 percent coupon rate and matures 20 years from today. The par value of the bond is $1,000. If a required market rate is 8 percent, what is the market price of the bond? If required market rates fall to 5 percent, what is the market price of the bond? Any help would be appreciated: A tax-exempt bond was recently issued at an annual 8 percent coupon rate and matures 20 years from today. The par value of the bond is $1,000. If a required market rate is 8 percent, what is the market price of the bond? If required market rates fall to 5 percent, what is the market price of the bond?

Explanation / Answer

Solution:

Present value of note receivbale = Present value of redeemable value + Present value of coupon payments Redeemable value 1,000 Coupon Payment   - 8 % * 100                                     80 Periods, 20 years 20 Present value of redeemable value Redeemable value 1,000 PVIF @ 8 % for 20 years                               0.215 Present value of redeemable value                             214.50 Present value of coupon payment Coupon Payment   - 8 % * 100                                     80 PVAF @ 8 %   for 20 years                               9.818 Present value of coupon payment                             785.44 Present value of bond                             999.94

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