In: Finance
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 6% annual coupon. Bond L matures in 16 years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond S at its maturity and that 16 more payments are to be made on Bond L.
a. What will the value of the Bond L be if the going interest rate is 6%? Round your answer to the nearest cent.
b. What will the value of the Bond S be if the going interest rate is 6%? Round your answer to the nearest cent.
c. What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent.
d. What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent.
e. What will the value of the Bond L be if the going interest rate is 13%? Round your answer to the nearest cent.
f. What will the value of the Bond S be if the going interest
rate is 13%? Round your answer to the nearest cent.
Bond L | Bond S | ||
Face Value (FV) | $1000 | $1000 | |
Annual Coupan Rate | 6% | 6% | |
Maturity Term | 16 years | 1 years | |
Coupan Amount | (1000*6%) | (1000*6%) | |
Coupan Amount per year | 60 | 60 | |
a) | Value of Bond L if interest rate is 6% | ||
By using PV Function in excel | |||
Value of Bond | $1000 | PV(6%,16,60,1000) | |
b) | Value of Bond S if interest rate is 6% | ||
By using PV Function in excel | |||
Value of Bond | $1000 | PV(6%,1,60,1000) | |
c) | Value of Bond L if interest rate is 8 % | ||
By using PV Function in excel | |||
Value of Bond | $822.97 | PV(8%,16,60,1000) | |
d) | Value of Bond S if interest rate is 8% | ||
By using PV Function in excel | |||
Value of Bond | $981.48 | PV(8%,1,60,1000) | |
e) | Value of Bond L if interest rate is 13 % | ||
By using PV Function in excel | |||
Value of Bond | $537.73 | PV(13%,16,60,1000) | |
f) | Value of Bond S if interest rate is 13% | ||
By using PV Function in excel | |||
Value of Bond | $938.05 | PV(13%,1,60,1000) | |