4 value 1.87 points Bias Inc. issued bonds 10 years ago at $1,000 per bond. Thes

Question

4 value 1.87 points Bias Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a 40-year life when issued and the annual interest payment was then 12 percent. This retum was in line at that point in time as described below the risk premium is now 2 percent and is appropriately reflected in the required retum (or yield to maturity) of the bonds. The bonds have 30 Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not years remaining until maturity round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.) of retum in valuing an asset is

Explanation / Answer

Present Value of Interest Payments PV A = A × PV IFA (n=40, i = 12%)

PV A = $100 × 8.2438 = $824.38                    Appendix D

Present Value of Principal Payment at Maturity

PV = FV × PV IF (n=40, i = 12%)                       Appendix B

PV = $1,000 × 0.0107 = $10.7

Total Present Value or Price of the =($824.38 + $10.7) = $835.08

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