Question

Out of the 5 questions, I got only 1 right, firm 3, years to maturity is 6. The other four I got wrong.

Applying Time Value of Money Concepts
Complete the missing information in the table below. Assume that all bonds pay interest semiannually.

Do not use negative signs with answer.
Round percentages to one decimal place (ex. 0.0345 = 3.5%).
Round all other values to the nearest whole number.

	Annual	Years to	Coupon		Issue
	Yield	Maturity	Rate	Face value	Proceeds
Firm 1	8.00%	15	7.00%	$400,000	$Answer
Firm 2	3.00%	10	0.00%	$Answer	$631,100
Firm 3	6.50%	Answer	5.00%	$500,000	$463,223
Firm 4	Answer %	12	3.50%	$1,000,000	$1,136,452
Firm 5	0.80%	20	2.00%	$600,000	$Answer

Answer 1

You can get accurate answers using Excel formula related to Time value of money.

Firm 1

For issue proceeds PV function of Excel is used

Its parameters are as follows :

Rate = 8%

Nper = 15

Pmt = (400000*7%)=280000

Fv = 400000

Now apply formula

=-PV(8%,15,28000,400000)

Now press enter you will get answer as 365762

Firm 2

To find Face value, FV function of Excel is used

Its parameters are as follows

Nper =10*2=20 (because it's zero - coupon bond)

Rate =3%/2=1.5%

Pv =-6311000

Pmt =0

Now apply formula

=FV(1.5%,20,0,-631100)

Now press enter you will get answer as 850000

Firm 4

To find annual yield, RATE formula of Excel is used

Its parameters are as follows

Nper =12

Pmt =(1000000*3.5%)=35000

Fv=1000000

Pv=-1136452

Now apply formula

Now press enter you will get answer as 2.2%

Firm 5

To find issue proceeds, PV function of Excel is used

Its parameters are as follows

Nper=20

Rate =0.8%

Pmt =(600000*2%)=12000

Fv=600000

Now apply formula

=-PV(0.8%,20,12000,600000)

Now press enter you will get answer as 732582