Question

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.

Answer 1

		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)