Question

The Sampson Company issued a $1,000 bond 5 years ago with an initial term of 25 years and a coupon rate of 9.5%. Today's interest rate is 10%. Do not round intermediate calculations. Round PVFA and PVF values in intermediate calculations to four decimal places.

1. What is the bond's current price if interest is paid semiannually as it is on most bonds? Round the answer to the nearest cent.
   $   
   
2. What is the price if the bond's interest is paid annually? Round the answer to the nearest cent.
   $   
   
   Comment on the difference between (a) and (b).
   The input in the box below will not be graded, but may be reviewed and considered by your instructor.
   
   
   
3. What would the price be if interest was paid semiannually and the bond was issued at a face value of $1500? Do not round intermediate calculations. Round the answer to the nearest cent.
   $   

Answer 1

Answer a)

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 10%/2 = 5% _ _ (Semi Annual )

And n is the no of Compounding periods 20 year * 2 = 40 _ _ (Semi Annual )

Coupon 9.5%/2 = 4.75%

=

= 815.05660191 + 142.0456822

= 957.10228411

= 957.10

Answer b)

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 10%

And n is the no of Compounding periods 20 year

Coupon 9.5%

=

= 808.788553409 + 148.64362799

= 957.432181399

= 957.42

Answer c)

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 10%/2 = 5% _ _ (Semi Annual )

And n is the no of Compounding periods 20 year * 2 = 40 _ _ (Semi Annual )

Coupon 9.5%/2 = 4.75%

=

= 1222.58490286 + 213.0685233

= 1435.65342616

= 1435.65

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