Question

Find the value of a bond maturing in 4 years, with a $1 comma 000 par value and a coupon interest rate of 11% ?(5.5% paid semiannually) if the required return on similar-risk bonds is 16% annual interest left parenthesis 8 % paid semiannually).

Answer 1

Statement showing Price or Intrinsic Value                 ( since there are semi annual payment so coupon payment is 1000*0.11/2=$55, yield is 8% and number of years= 8)
Particulars	Time	PVf @8%	Amount	PV
Cash Flows (Interest)	1.00	0.9259	55.00	50.93
Cash Flows (Interest)	2.00	0.8573	55.00	47.15
Cash Flows (Interest)	3.00	0.7938	55.00	43.66
Cash Flows (Interest)	4.00	0.7350	55.00	40.43
Cash Flows (Interest)	5.00	0.6806	55.00	37.43
Cash Flows (Interest)	6.00	0.6302	55.00	34.66
Cash Flows (Interest)	7.00	0.5835	55.00	32.09
Cash Flows (Interest)	8.00	0.5403	55.00	29.71
Cash flows (Maturity Amount)	8.00	0.5403	1,000.00	540.30
Intrinsic Value of Bond or Current Bond Price				856.37
Value of bond when interest is paid semi annually is $856.37