Consider two bonds. Each has a face value of $1000 and matures in 5 years. One...

Consider two bonds. Each has a face value of $1000 and matures in 5 years. One has no coupon payment, and the other pays $100 per year. Calculate the present value of each bond if the interest rate is 4 percent and if the interest rate is 8 percent. (Show Work)

Expert Solution

Computation Of Bond Value if interest rate is 4%

a	Annual Coupon Amount	$ 100.00

b	Present Value Annuity Factor for (5 Years,4%)	4.451822
c	Present Value Of Annual Interest (a*b)	$ 445.18
d	Redemption Value	$ 1,000.00
e	Present Value Of (5 Years,4%)	0.82193
g	Present Value Of Redemption Amount (d*e)	$ 821.93
f	Present value (c+g)	$ 1,267.11

Computation Of Bond Value if interest rate is 8%

a	Annual Coupon Amount	$ 100.00

b	Present Value Annuity Factor for (5 Years,8%)	3.992710
c	Present Value Of Annual Interest (a*b)	$ 399.27
d	Redemption Value	$ 1,000.00
e	Present Value Of (5 Years,8%)	0.68058
g	Present Value Of Redemption Amount (d*e)	$ 680.58
f	Present value (c+g)	$ 1,079.85

jeff jeffy answered 2 years ago

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