Question

In: Finance

Flora​ Co.'s bonds, maturing in 19 ​years, pay 9 percent interest on a $ 1 000...

Flora​ Co.'s bonds, maturing in 19 ​years, pay 9 percent interest on a $ 1 000 face value.​ However, interest is paid semiannually. If your required rate of return is 7 ​percent, what is the value of the​ bond? How would your answer change if the interest were paid​ annually? a. If the interest is paid​ semiannually, the value of the bond is?

Solutions

Expert Solution

a.Information provided:

Face value= future value= $1,000

Time= 19 years*2= 38 semi-annual periods

Coupon rate= 9%/2= 4.50%

Coupon payment= 0.0450*1,000= $45

Required return= 7%/2= 3.50%

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

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 38

PMT= 45

I/Y= 3.50

Press the CPT key and PV to compute the present value.

The value obtained is 1,208.41.

Therefore, the value of the bond is $1,208.41.

b.Information provided:

Face value= future value= $1,000

Time= 19 years

Coupon rate= 9%

Coupon payment= 0.090*1,000= $90

Required return= 7%

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

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 19

PMT= 90

I/Y= 7

Press the CPT key and PV to compute the present value.

The value obtained is 1,206.71.

Therefore, the value of the bond is $1,206.71.

In case of any query, kindly comment on the solution.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Flora​ Co.'s bonds, maturing in 7 ​years, pay 9 percent interest on a $ 1 comma...
Flora​ Co.'s bonds, maturing in 7 ​years, pay 9 percent interest on a $ 1 comma 000 face value.​ However, interest is paid semiannually. If your required rate of return is 6 ​percent, what is the value of the​ bond? How would your answer change if the interest were paid​ annually?
​(Bond valuation​) Flora​ Co.'s bonds, maturing in 9 ​years, pay 16 percent interest on a $...
​(Bond valuation​) Flora​ Co.'s bonds, maturing in 9 ​years, pay 16 percent interest on a $ 1000 face value.​ However, interest is paid semiannually. If your required rate of return is 13 ​percent, what is the value of the​ bond? How would your answer change if the interest were paid​ annually? a. If the interest is paid​ semiannually, the value of the bond is ​$ 1156.50. ​(Round to the nearest​ cent.) b. If the interest is paid​ annually, the value...
Flora​ Co.'s bonds, maturing in 19 years, pay 12 percent interest on a $1,000 face value.​...
Flora​ Co.'s bonds, maturing in 19 years, pay 12 percent interest on a $1,000 face value.​ However, interest is paid semiannually. If your required rate of return is 11 percent, what is the value of the​ bond? How would your answer change if the interest were paid​ annually?
(Bond valuation​) Flora​ Co.'s bonds, maturing in 1515 ​years, pay 1515 percent interest on a $...
(Bond valuation​) Flora​ Co.'s bonds, maturing in 1515 ​years, pay 1515 percent interest on a $ 1 comma 000$1,000 face value.​ However, interest is paid semiannually. If your required rate of return is 55 ​percent, what is the value of the​ bond? How would your answer change if the interest were paid​ annually?
Flora Co.'s bonds, maturing in 6 years, pay 15 percent interest on a $1,000 face value.
  Flora Co.'s bonds, maturing in 6 years, pay 15 percent interest on a $1,000 face value. However, interest is paid semiannually. If your required rate of return is 13 percent, what is the value of the bond How would your answer change if the interest were paid? annually
Flora​ Co.'s bonds, maturing in 14 ​years, pay 14 percent interest on a $1,000 face value.​...
Flora​ Co.'s bonds, maturing in 14 ​years, pay 14 percent interest on a $1,000 face value.​ However, interest is paid semiannually. If your required rate of return is 6 ​percent, what is the value of the​ bond? How would your answer change if the interest were paid​ annually?
(Bond valuation​) Flora​ Co.'s bonds, maturing in 13 ​years, pay 6 percent interest on a $1,000...
(Bond valuation​) Flora​ Co.'s bonds, maturing in 13 ​years, pay 6 percent interest on a $1,000 face value.​ However, interest is paid semiannually. If your required rate of return is 8 ​percent, what is the value of the​ bond? How would your answer change if the interest were paid​ annually? a. If the interest is paid​ semiannually, the value of the bond is ​____. ​(Round to the nearest​ cent.) b. If the interest is paid​ annually, the value of the...
1- Abner​ Corporation's bonds mature in 19 years and pay 8 percent interest annually. If you...
1- Abner​ Corporation's bonds mature in 19 years and pay 8 percent interest annually. If you purchase the bonds for ​$1,075​, what is your yield to​ maturity? Your yield to maturity on the Abner bonds is _​%. ​(Round to two decimal​ places.) 2- The Saleemi​ Corporation's ​$1,000 bonds pay 9 percent interest annually and have 11 years until maturity. You can purchase the bond for ​$955. a.What is the yield to maturity on this​ bond? b.Should you purchase the bond...
ABC's bonds will be maturing in 8 ​years, pay 8 percent coupon rate on the $1,000...
ABC's bonds will be maturing in 8 ​years, pay 8 percent coupon rate on the $1,000 par value. a. The value of the bond is ​$________​, if the coupon is paid semiannually.  ​(Round to the nearest​ cent.) b. The value of the bond is ​$________​, if the coupon is paid​ annually.
 Abner​ Corporation's bonds mature in 23 years and pay 9 percent interest annually. If you purchase...
 Abner​ Corporation's bonds mature in 23 years and pay 9 percent interest annually. If you purchase the bonds for $1,125​, what is your yield to​ maturity?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT