Question
In: Finance
ABC's bonds will be maturing in 8 years, pay 8 percent coupon rate on the $1,000...
ABC's bonds will be maturing in 8 years, pay 8 percent coupon rate on the $1,000 par value.
a. The value of the bond is $________, if the coupon is paid semiannually. (Round to the nearest cent.)
b. The value of the bond is $________, if the coupon is paid annually.
Solutions
Expert Solution
a.Information provided:
Par value= future value= $1,000
Time= 8 years*2= 16 semi-annual periods
Coupon rate= 8%/2= 4%
Coupon payment= 0.04*1,000= $40 per semi-annual period
The value of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
PMT= 40
N= 16
Press the CPT key and PV to compute the present value.
The value obtained is 1,640.
Therefore, the value of the bond is $1,640.
b.Information provided:
Par value= future value= $1,000
Time= 8 years
Coupon rate= 8%
Coupon payment= 0.08*1,000= $80
The value of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
PMT= 80
N= 8
Press the CPT key and PV to compute the present value.
The value obtained is 1,640.
Therefore, the value of the bond is $1,640.
jeff jeffy answered 2 years agoRelated Solutions
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