Zhen Yi Computers has an outstanding bond issue with a par value of $2,000, with

Question

Zhen Yi Computers has an outstanding bond issue with a par value of $2,000, with an annual 14% coupon rate. However, note that interest payments on this bond are paid semi-annually. The bond was issued 26 years ago and has 3 years remaining until maturity. What is the market value of this bond today, assuming a 12% annual required rate of return? a. First, label the bond variables: 1. Semi-annual coupon payment (PMT): 2. Semi-annual required rate of return: 3. Bond par value: 4. Semi-annual time periods remaining until maturity:

Explanation / Answer

1. Semi-annual coupon payment (PMT)= 7%of2000= $140

2. Semi-annual required rate of return= 12/2= 6%

3. Bond par value= $2000

4. Semi-annual time periods remaining until maturity= 3x2= 6 years

market value of this bond today= 140PVIFA(6%,6)+2000PVIF(6%,6)= $2098.346

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