1. What is the value of a bond that has a par value of $1,000, a coupon rate of
ID: 2639664 • Letter: 1
Question
1. What is the value of a bond that has a par value of $1,000, a coupon rate of 17.24 percent (paid annually), and the matures in 8 years? Assume a required rate of return on this bond is 13.53 percent.
Round the answer to two decimal places.
All the work has to be shown!
2. General Mills has a $1,000 par value, 12-year bond outstanding with an annual coupon rate of 3.60 percent per year, paid semiannually. Market interest rates on similar bonds are 12.70 percent. Calculate the bond's price today.
Round the answer to two decimal places.
All the work has to be shown!
3. Black Water Corp. just issued zero-coupon bonds with a par value of $1,000. THe bond has a maturity of 25 years and a yield to maturity of 8.29 percent, compounded semi-annually. What is the current price of bond?
Round the answer to two decimal places.
All the work has to be shown!
Explanation / Answer
1) Value of Bond = pv(rate,nper,pmt,fv)
rate = 13.53%
nper= 8
pmt = 17.24%*1000 = 172.40
fv = 1000
Value of Bond = pv(13.53%,8,172.40,1000)
Value of Bond = $ 1174.85
2) Bond Price Today = pv(rate,nper,pmt,fv)
rate = 12.70 *1/2 = 6.35%
nper= 12*2 = 24
pmt = 3.60%*1000 *1/2 = 18
fv = 1000
Bond Price Today = pv(6.35%,24,18,1000)
Bond Price Today = $ 446.97
3) Current price of Bond = 1000/(1+ 8.29%/2)^(25*2)
Current price of Bond = $ 131.24
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