How much would you pay for a 10 year bond with a par value of $1,000 and a 6% co

ID: 2699833 • Letter: H

Question

How much would you pay for a 10 year bond with a par value of $1,000 and a 6% coupon rate? Assume the interest is paid semi-annually & the market rate of return are similar on bonds is 5 percent.
How much would you pay for a share of preferred stock paying $5-per-share annual dividend? Assume your required rate of return is 8 percent.
A company is planning to set aside money to repay $150,000,000 in bonds that will be due in 8 years. How much money would the company need to set aside at the end of each year for the next 8 years to repay the bonds when they come do? Assume the market rate of interest is 6 percent. (HOW WOULD YOUR ANSWER CHANGE IF THE MONEY WAS DEPOSITED AT THE BEGINNING OF EACH YEAR?)

Please show all work. Please show all work.

1. Face Value = FV = 1000, COupon =6% Semi.

So PMT = 6%*1000/2 = 30

nper = 10*2 = 20 periods

Rate = 5%/2 = 2.5%

So Price to pay = PV(rate,nper,pmt,fv)

= PV(2.5%,20,30,1000)

= $1,077.95

2. Kp=8%, Dp=$5

We know P= Dp/Kp wher P is stock price

so Price to pay = 5/8% = $62.50

3. Bond to repay=PV=150,000,000

Deposit at end of Year is Ordinary Annuity & type=0

nper = 8 yrs

Coupon = 6%. Bond is fully paid in 8 yr. So FV=0

SO annual Payment = PMT(Rate,nper,pv,fv,type)

= PMT(6%,8,-150000000,0,0)

= $24,155,391.40

If Deposit is at start of period, it is ANnuity Due. So type=1

SO annual Payment = PMT(Rate,nper,pv,fv,type)

= PMT(6%,8,-150000000,0,1)

=$22,788,105.09

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