pg-21 (similar to) Question Her (Bond valuation relationships) A bond of Visador

Question

pg-21 (similar to) Question Her (Bond valuation relationships) A bond of Visador Corporation pays $80 in annual interest, with a $1,000 par value. The bonds mature in 25 years. The mark required yield to maturity on a comparable-risk bond is 7.5 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 11 c.Interpret your finding in parts a and b. percent or () decreases to5 a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 7.5 percent? (Round to the nearest cent.) e of th Enter your arvwer in tho answer box and then click Check Answer 4 remaining Clear Al

Explanation / Answer

P9-21) a) valuation formula: coupon * PVIFA(Yield % , n) + Par value * PVIF(Yield %, n) Valuation (yield 7.5%) = 80 * A/f(7.5%,25) + 1000 * F/f(7.5%,25) = 80*11.1469 + 1000*0.1640=1055.75 b) Valuation (yield 11%) = 80*8.4217 + 1000*0.0736=747.34 Valuation (yield 5%) = 80*14.0939 + 1000*0.2953 = 1422.81 c) interpretion : higher the Yield rate, lower the valuation and lower the Yield rate, higher the bond valuation.

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