Question

1. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually. What is the value of the bond if your required rate of return is 5%?

2. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What is the value of the bond if your required rate of return is 5%?

3. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What is the value of the bond if your required rate of return is 7%?

4. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What is the value of the bond if your required rate of return is 3%?

Answer 1

1)	Value of bond	=-pv(rate,nper,pmt,fv)
			= $ 1,000.00
	Where,
	rate			=	5%
	nper			=	5
	pmt	=	1000*5%	=	$       50.00
	fv			=	$ 1,000.00
2)	Value of bond	=-pv(rate,nper,pmt,fv)
			= $ 1,000.00
	Where,
	rate	=	5%/2	=	2.50%
	nper	=	5*2	=	10
	pmt	=	1000*5%*6/12	=	$       25.00
	fv			=	$ 1,000.00
3)	Value of bond	=-pv(rate,nper,pmt,fv)
			= $     916.83
	Where,
	rate	=	7%/2	=	3.50%
	nper	=	5*2	=	10
	pmt	=	1000*5%*6/12	=	$       25.00
	fv			=	$ 1,000.00
4)	Value of bond	=-pv(rate,nper,pmt,fv)
			= $ 1,092.22
	Where,
	rate	=	3%/2	=	1.50%
	nper	=	5*2	=	10
	pmt	=	1000*5%*6/12	=	$       25.00
	fv			=	$ 1,000.00