The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years,
ID: 2613391 • Letter: T
Question
The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 16 percent. Assume interest payments are made semiannually.a. Determine the present value of the bond’s cash flows if the required rate of return is 16 percent.
b. How would your answer change if the required rate of return is 12 percent? Answers: Enter the answers in blue shaded cells Step 1: a. PV 16% rate of return b. PV 12% rate of return Coupon Rate F F Years to maturity F F Number of coupon payments per year F F Par Value F F Market Rate F F Step 2: Compute periodic interest rate C C Compute number of periods C C Compute coupon cash flow C C Step 3: Bond price (use PV) C C The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 16 percent. Assume interest payments are made semiannually.
a. Determine the present value of the bond’s cash flows if the required rate of return is 16 percent.
b. How would your answer change if the required rate of return is 12 percent? Answers: Enter the answers in blue shaded cells Step 1: a. PV 16% rate of return b. PV 12% rate of return Coupon Rate F F Years to maturity F F Number of coupon payments per year F F Par Value F F Market Rate F F Step 2: Compute periodic interest rate C C Compute number of periods C C Compute coupon cash flow C C Step 3: Bond price (use PV) C C
Explanation / Answer
Statement showing calculation of Bond Price today Particulars Time PVF@8% Amount PV(Amount *PVF) Cash Inflows(Interest Payment) 0.500 0.9259 80.00 74.07 Cash Inflows(Interest Payment) 1.000 0.8573 80.00 68.59 Cash Inflows(Interest Payment) 1.500 0.7938 80.00 63.51 Cash Inflows(Interest Payment) 2.000 0.7350 80.00 58.80 Cash Inflows(Interest Payment) 2.500 0.6806 80.00 54.45 Cash Inflows(Interest Payment) 3.000 0.6302 80.00 50.41 Cash Inflows(Interest Payment) 3.500 0.5835 80.00 46.68 Cash Inflows(Interest Payment) 4.000 0.5403 80.00 43.22 Cash Inflows(Interest Payment) 4.500 0.5002 80.00 40.02 Cash Inflows(Interest Payment) 5.000 0.4632 80.00 37.06 Cash Inflows(Interest Payment) 5.500 0.4289 80.00 34.31 Cash Inflows(Interest Payment) 6.000 0.3971 80.00 31.77 Cash Inflows(Interest Payment) 6.500 0.3677 80.00 29.42 Cash Inflows(Interest Payment) 7.000 0.3405 80.00 27.24 Cash Inflows(Interest Payment) 7.500 0.3152 80.00 25.22 Cash Inflows(Interest Payment) 8.000 0.2919 80.00 23.35 Cash Inflows(Interest Payment) 8.500 0.2703 80.00 21.62 Cash Inflows(Interest Payment) 9.000 0.2502 80.00 20.02 Cash Inflows(Interest Payment) 9.500 0.2317 80.00 18.54 Cash Inflows(Interest Payment) 10.000 0.2145 80.00 17.16 Cash Inflows(Maturity) 10.000 0.2145 1,000.00 214.55 Bond Price today 2,600.00 1,000.00 Statement showing calculation of Bond Price today Particulars Time PVF@6% Amount PV(Amount *PVF) Cash Inflows(Interest Payment) 0.500 0.9434 80.00 75.47 Cash Inflows(Interest Payment) 1.000 0.8900 80.00 71.20 Cash Inflows(Interest Payment) 1.500 0.8396 80.00 67.17 Cash Inflows(Interest Payment) 2.000 0.7921 80.00 63.37 Cash Inflows(Interest Payment) 2.500 0.7473 80.00 59.78 Cash Inflows(Interest Payment) 3.000 0.7050 80.00 56.40 Cash Inflows(Interest Payment) 3.500 0.6651 80.00 53.20 Cash Inflows(Interest Payment) 4.000 0.6274 80.00 50.19 Cash Inflows(Interest Payment) 4.500 0.5919 80.00 47.35 Cash Inflows(Interest Payment) 5.000 0.5584 80.00 44.67 Cash Inflows(Interest Payment) 5.500 0.5268 80.00 42.14 Cash Inflows(Interest Payment) 6.000 0.4970 80.00 39.76 Cash Inflows(Interest Payment) 6.500 0.4688 80.00 37.51 Cash Inflows(Interest Payment) 7.000 0.4423 80.00 35.38 Cash Inflows(Interest Payment) 7.500 0.4173 80.00 33.38 Cash Inflows(Interest Payment) 8.000 0.3936 80.00 31.49 Cash Inflows(Interest Payment) 8.500 0.3714 80.00 29.71 Cash Inflows(Interest Payment) 9.000 0.3503 80.00 28.03 Cash Inflows(Interest Payment) 9.500 0.3305 80.00 26.44 Cash Inflows(Interest Payment) 10.000 0.3118 80.00 24.94 Cash Inflows(Maturity) 10.000 0.3118 1,000.00 311.80 Bond Price today 2,600.00 1,229.40
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