Annual interest Calculate the value of each of the bonds shown in the following
ID: 2698743 • Letter: A
Question
Annual interest Calculate the value of each of the bonds shown in the following table, all of which pay interest annually.
Bond Par value Coupon interest rate Years to maturity Required return
A $1,000 14% 20 12%
B 1,000 8 16 8
C 100 10 8 13
D 500 16 13 18
E 1,000 12 10 10
Explanation / Answer
A. Interest = $140
Times Interest is paid = 20
PVA = I[1-(1+k)^-n]/k
= 140*(1-(1+0.12)^-20)/0.12
= $1045.722
PV = 1000/(1+0.12)^20 = $103.66
Present Value of Bond = $1149.388
B. Interest = $80
Times Interest is paid = 16
PVA = I[1-(1+k)^-n]/k
= 80*(1-(1+0.08)^-16)/0.08
= $708.109
PV = 1000/(1+0.08)^16 = $291.89
Present Value of Bond = $1000
C. Interest = $10
Times Interest is paid = 8
PVA = I[1-(1+k)^-n]/k
= 10*(1-(1+0.13)^-8)/0.13
= $47.987
PV = 100/(1+0.13)^8 = $37.615
Present Value of Bond = $85.602
D. Interest = $80
Times Interest is paid = 12
PVA = I[1-(1+k)^-n]/k
= 80*(1-(1+0.18)^-13)/0.18
= $392.761
PV = 500/(1+0.18)^13 = $37.615
Present Value of Bond = $450.904
E. Interest = $120
Times Interest is paid = 10
PVA = I[1-(1+k)^-n]/k
= 120*(1-(1+0.10)^-10)/0.10
= $737.348
PV = 1000/(1+0.10)^10 = $
Present Value of Bond = $
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.