Flora Co.'s bonds, maturing in 6 years, pay 15 percent interest on a $1,000 face value.

Flora Co.'s bonds, maturing in 6 years, pay 15 percent interest on a $1,000 face value. However, interest is paid semiannually. If your required rate of return is 13 percent, what is the value of the bond How would your answer change if the interest were paid? annually

Expert Solution

1.

Bond value for semiannual payment = $1,081.59

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate or yield / frequency of coupon in a year =	6.500000
PMT = Coupon rate x FV / frequency =	-$75.00
N = Number of years remaining x frequency =	12.00
FV = Future Value =	-$1,000.00
CPT > PV = Present value of bond	$1,081.59

2.

Bond value for annual payment = $1,079.95

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate or yield / frequency of coupon in a year =	13.000000
PMT = Coupon rate x FV / frequency =	-$150.00
N = Number of years remaining x frequency =	6
FV = Future Value =	-$1,000.00
CPT > PV = Present value of bond	$1,079.95

jeff jeffy answered 2 years ago

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