Question

1. What is the present value of a high-quality bond with a face value of $1000 that makes semiannual payments of $50 and will reach maturity in 15 years if the current rate of interest for high-quality securities is 10%?

2. What is the present value of the bond described in problem 1 if it will reach maturity in 10 years and the current rate of interest for high-quality securities remains at 10%?

3. What is the present value of the bond described in problem 1 if it will reach maturity in 10 years and the current rate of interest for high-quality securities has dropped to 9%?

4. What is the present value of the bond described in problem 1 if it will reach maturity in 10 years and the current rate of interest for high-quality securities has risen to 11%?

Answer 1

1.

Using financial calculator BA II Plus - Input details:	Interest at 10%
I/Y = Yield/2 =	5.00
FV = Future Value =	-$1,000
N = Number of remaining coupons =	30
PMT = Coupon =	-$50.00
CPT > PV = Bond Value =	$1,000.00

2.

Using financial calculator BA II Plus - Input details:	Interest at 10%
I/Y = Yield/2 =	5.00
FV = Future Value =	-$1,000
N = Number of remaining coupons =	20
PMT = Coupon =	-$50.00
CPT > PV = Bond Value =	$1,000.00

3.

Using financial calculator BA II Plus - Input details:	Interest at 9%
I/Y = Yield/2 =	4.50
FV = Future Value =	-$1,000
N = Number of remaining coupons =	20
PMT = Coupon =	-$50.00
CPT > PV = Bond Value =	$1,065.04

4.

Using financial calculator BA II Plus - Input details:	Interest at 11%
I/Y = Yield/2 =	5.50
FV = Future Value =	-$1,000
N = Number of remaining coupons =	20
PMT = Coupon =	-$50.00
CPT > PV = Bond Value =	$940.25