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 ago
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