Question

Finance:

1. What is the current value of a $1,000 bond with a 6% annual coupon rate (paid annually) that matures in 11 years if the appropriate discount rate is 12%. Please round your answer to the nearest hundredth.

2. What is the current value of a $1,000 bond with a 5% annual coupon rate (paid semi-annually) that matures in 6 years if the appropriate stated annual discount rate is 8%. Please round your answer to the nearest hundredth.

3. What interest rate is implicit in a $1,000 par value zero-coupon bond that matures in 6 years if the current price is $470. Please specify your answer in decimal terms and round your answer to the nearest thousandth (e.g., enter 12.3 percent as 0.123).

4. What is the current value of a zero-coupon bond that pays a face value of $1,000 at maturity in 8 years if the appropriate discount rate is 5%. Please round your answer to the nearest hundredth.

Answer 1

1. What is the current value of a $1,000 bond with a 6% annual coupon rate (paid annually) that matures in 11 years if the appropriate discount rate is 12%.

cpn = 1,000 * 0.06 = 60

2. What is the current value of a $1,000 bond with a 5% annual coupon rate (paid semi-annually) that matures in 6 years if the appropriate stated annual discount rate is 8%.

cpn = 1,000 * 0.05/2 = 25

n = 6 * 2 = 12

r = 0.08/2 = 0.04

3. What interest rate is implicit in a $1,000 par value zero-coupon bond that matures in 6 years if the current price is $470.

FV = PV/(1 + r)^n

(1 + r)^n = FV/PV

1 + r = (FV/PV)^(1/n)

r = (FV/PV)^(1/n) - 1

r = (1,000/470)^(1/6) - 1

r = 0.1340974058

r = 0.134

4. What is the current value of a zero-coupon bond that pays a face value of $1,000 at maturity in 8 years if the appropriate discount rate is 5%.

PV = FV/(1 + r)^n

Price = 1,000/(1 + 0.05)^8

Price = 676.8393620287

Price = $676.84

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