Question

In: Finance

What is the value of the following $1000 par value bonds:         Interest rate      Required rate...

  1. What is the value of the following $1000 par value bonds:

        Interest rate      Required rate of return                 Years to maturity Value?                 

              4%                                    7%                                                          10

              4%                                    5%                                                          10          

              4%                                    9%                                                          10

Solutions

Expert Solution

1.Information provided:

Par value= future value= $1,000

Time= 10 years

Yield to maturity= 7%

Coupon arte= 4%

Coupon payment= 0.04*1,000= $40

The value of the bond is calculated by computing the present value of the bond.

The below has to be entered in a financial calculator to compute the the present value of the bond:

FV= 1,000

N= 10

PMT= 40

I/Y= 7

The value obtained is 789.29.

Therefore, the value of the bond is $789.29.

2.Information provided:

Par value= future value= $1,000

Time= 10 years

Yield to maturity= 5%

Coupon arte= 4%

Coupon payment= 0.04*1,000= $40

The value of the bond is calculated by computing the present value of the bond.

The below has to be entered in a financial calculator to compute the the present value of the bond:

FV= 1,000

N= 10

PMT= 40

I/Y= 5

The value obtained is 922.78.

Therefore, the value of the bond is $922.78.

c. Information provided:

Par value= future value= $1,000

Time= 10 years

Yield to maturity= 9%

Coupon arte= 4%

Coupon payment= 0.04*1,000= $40

The value of the bond is calculated by computing the present value of the bond.

The below has to be entered in a financial calculator to compute the the present value of the bond:

FV= 1,000

N= 10

PMT= 40

I/Y= 9

The value obtained is 679.12.

Therefore, the value of the bond is $679.12.

In case of any further queries, kindly comment on the solution.


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