BSW Corporation has a bond issue outstanding with an annual coupon rate of 8.4 p

Question

BSW Corporation has a bond issue outstanding with an annual coupon rate of 8.4 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 13 percent, compounded quarterly, required rate of return. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

BSW Corporation has a bond issue outstanding with an annual coupon rate of 8.4 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 13 percent, compounded quarterly, required rate of return. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Rate = 13%/4 (indicates the quarterly rate of interest)

FV = 1000 (indicates the face value of bonds)

PMT = 1000*8.4%/4 = 21 (indicates the amount of quarterly interest amount)

Nper = 4*4 = 16 (indicates the period)

PV = ? (indicates fair present value)

Fair Present Value = PV(Rate,Nper,PMT,FV) = PV(13%/4,16,21,1000) = $858.27

Answer is $858.27

Thanks.

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