1. What is the present value of a high-quality bond with a face value of $1000 t
ID: 2621280 • Letter: 1
Question
1. What is the present value of a high-quality bond with a face value of $1000 that makes semiannual payments of $50 and will reach maturity in 15 years if the current rate of interest for high-quality securities is 10%?
2. What is the present value of the bond described in problem 1 if it will reach maturity in 10 years and the current rate of interest for high-quality securities remains at 10%?
3. What is the present value of the bond described in problem 1 if it will reach maturity in 10 years and the current rate of interest for high-quality securities has dropped to 9%?
4. What is the present value of the bond described in problem 1 if it will reach maturity in 10 years and the current rate of interest for high-quality securities has risen to 11%?
Explanation / Answer
1.
Using financial calculator BA II Plus - Input details:
Interest at 10%
I/Y = Yield/2 =
5.00
FV = Future Value =
-$1,000
N = Number of remaining coupons =
30
PMT = Coupon =
-$50.00
CPT > PV = Bond Value =
$1,000.00
2.
Using financial calculator BA II Plus - Input details:
Interest at 10%
I/Y = Yield/2 =
5.00
FV = Future Value =
-$1,000
N = Number of remaining coupons =
20
PMT = Coupon =
-$50.00
CPT > PV = Bond Value =
$1,000.00
3.
Using financial calculator BA II Plus - Input details:
Interest at 9%
I/Y = Yield/2 =
4.50
FV = Future Value =
-$1,000
N = Number of remaining coupons =
20
PMT = Coupon =
-$50.00
CPT > PV = Bond Value =
$1,065.04
4.
Using financial calculator BA II Plus - Input details:
Interest at 11%
I/Y = Yield/2 =
5.50
FV = Future Value =
-$1,000
N = Number of remaining coupons =
20
PMT = Coupon =
-$50.00
CPT > PV = Bond Value =
$940.25
Using financial calculator BA II Plus - Input details:
Interest at 10%
I/Y = Yield/2 =
5.00
FV = Future Value =
-$1,000
N = Number of remaining coupons =
30
PMT = Coupon =
-$50.00
CPT > PV = Bond Value =
$1,000.00
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