Xerox issued bonds that pay $57.50 in interest each year and will mature in 10 years....

Xerox issued bonds that pay $57.50 in interest each year and will mature in 10 years. You are thinking about purchasing the bonds. You have decided that you would need to receive a return of 7 percent on your investment. What is the value of the bond to you, first assuming that the interest is paid annually and then semiannually?

a. If the interest is paid semiannually, the value of the bond is _ ?

Solutions

Expert Solution

(a)-Price of the Bond if the interest is paid semi-annually

· The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.

· The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

· Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figures

Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$57.50 x ½]	PMT	28.75
Market Interest Rate or Yield to maturity on the Bond [7.00% x ½]	1/Y	3.50
Maturity Period/Time to Maturity [10 Years x 2]	N	20
Bond Price/Current market price of the Bond	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $911.17.

If the interest is paid semi-annually, the value of the bond is $911.17

ekkarill92 answered 1 year ago

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