Question

Knight, Inc., has issued a three-year bond that pays a coupon of 4.15 percent. Coupon payments are made semiannually. Given the market rate of interest of 3.78 percent, what is the market value of the bond? (Round answer to 2 decimal places, e.g. 15.25.)

Market value

$

Answer 1

Semi annual period	cash flow	present value factor at 1.89% for 6 semi annual period =1/(1+r)^n r = 1.89% n = 1,2,3,4,5,6	present value of cash flow = cash flow*Present value factor at 1.89% for 6 semi annual period
1	20.75	0.981450584	20.36509962
2	20.75	0.963245249	19.98733891
3	20.75	0.945377612	19.61658545
4	20.75	0.927841409	19.25270924
5	20.75	0.910630493	18.89558273
6	1020.75	0.893738829	912.2839098
marke value of bond = sum of present value of cash flow			1010.40
Value of bond	(semi annual coupon payment*PVAF At 1.89% for 6 semiannual period)+(face value*PVF at 1.89% at 6th semiannual period)	(20.75*5.62228)+(1000*.89374)	1010.40
semi annual coupon payment	1000*4.15%*1/2	20.75
face value		1000
PVAF at 1.89% for 6th semiannual period	1-(1+r)^-n /r	1-(1.0189)^-6 /1.89%	.10626/1.89%
PVF at 1.89% at 6th semiannual period	1/(1+r)^n	1/(1.0189)^6