Calculate the fair present values of the following bonds, all of which pay inter

Question

Calculate the fair present values of the following bonds, all of which pay interest semiannually, have a face value of $1,000, have 10 years remaining to maturity, and have a required rate of return of 12 percent.

The bond has a 8 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

The bond has a 10 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

The bond has a 12 percent coupon rate. (Do not round intermediate calculations.)

Calculate the fair present values of the following bonds, all of which pay interest semiannually, have a face value of $1,000, have 10 years remaining to maturity, and have a required rate of return of 12 percent.

Explanation / Answer

Hi,

Please find the detailed answer as follows;

Part A:

FV = 1000 (indicates the future/face value)

Rate = 12%/2 = 6% (indicates the rate of interest)

Nper = 10*2 = 20 (indicates the period over which interest payments are made)

PMT = 1000*8%*1/2 = 40 (indicates the amount of interest payment)

PV = ? (indicates the present value)

Fair Present Value = PV(Rate,Nper,PMT,FV) = PV(6%,20,40,1000) = $770.60

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Part B:

FV = 1000 (indicates the future/face value)

Rate = 12%/2 = 6% (indicates the rate of interest)

Nper = 10*2 = 20 (indicates the period over which interest payments are made)

PMT = 1000*10%*1/2 = 50 (indicates the amount of interest payment)

PV = ? (indicates the present value)

Fair Present Value = PV(Rate,Nper,PMT,FV) = PV(6%,20,50,1000) = $885.30

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Part C:

FV = 1000 (indicates the future/face value)

Rate = 12%/2 = 6% (indicates the rate of interest)

Nper = 10*2 = 20 (indicates the period over which interest payments are made)

PMT = 1000*12%*1/2 = 60 (indicates the amount of interest payment)

PV = ? (indicates the present value)

Fair Present Value = PV(Rate,Nper,PMT,FV) = PV(6%,20,60,1000) = $1000

Thanks.

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