Question
In: Accounting
W7 2/12 (Related to Checkpoint 9.3) (Bond valuation) Calculate the value of a bond that matures...
W7 2/12
(Related to Checkpoint 9.3) (Bond valuation) Calculate the value of a bond that matures in
1818
years and has a
$ 1 comma 000$1,000
par value. The annual coupon interest rate is
1212
percent and the market's required yield to maturity on a comparable-risk bond is
1111
percent.
The value of the bond is
$nothing.
(Round to the nearest cent.)
Solutions
Expert Solution
Correct Answer:
The value of the bond is $ 1,077
|
Formula Applied |
||
|
Face Value of Bond |
$ 1,000 |
|
|
Interest Annually @ 12 % (12/100 * 1,000) |
$ 120 |
(Face Value of Bonds * Coupon rate ) |
|
Semi-Annual Effective interest Rate ® ( 11%) |
0.110 |
11% |
|
Time Period (n) 18 years |
18.00 |
18 |
|
Present Value of Face Value of Bond |
$ 152.82218 |
Face Value/(1+r%)^2n |
|
Present Value of Interest payment |
$ 924.19 |
Interest * ((1-(1+r)^-n)/r) |
|
Issue Price Of Bond |
$ 1,077 |
PV of Face value of bond + PV of Interest Paid Annually |
|
Premium or (Discount) |
$ 77 |
Issue Price - Face Value of Bonds |
End of answer.
Thanks.
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