Question

Calculate the fair present values of the following bonds, all of which pay interest semiannually, have a face value of $1,000, have 10 years remaining to maturity, and have a required rate of return of 12 percent.

1. The bond has a 8 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

2. The bond has a 10 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

3. The bond has a 12 percent coupon rate. (Do not round intermediate calculations.)

a. Fair present value $_____

b. Fair present value $____

c. Fair present Value $_____

Answer 1

Answer a)

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 12% / 2 = 0.06

And n is the no of Compounding periods 10 years * 2 = 20

Coupon 8% / 2 = 0.04

=

= 770.60

Answer b)

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 12% / 2 = 0.06

And n is the no of Compounding periods 10 years * 2 = 20

Coupon 10% / 2 = 0.05

=

= 885.30

Answer c)

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 12% / 2 = 0.06

And n is the no of Compounding periods 10 years * 2 = 20

Coupon 12% / 2 = 0.06

=

= 1000