The data $1,000 par value bonds! Calculate the values of bonds if the required r
ID: 2662646 • Letter: T
Question
The data $1,000 par value bonds! Calculate the values of bonds if the required rate of returnare as follows; Smith 7%, Donald 7.5% and Cirrus at 10% Smith Donald Cirrus Coupon interestrate; 6.37% 7.875% 7.2% Years tomaturity; 3 8 11 Top rating for showing work! The data $1,000 par value bonds! Calculate the values of bonds if the required rate of returnare as follows; Smith 7%, Donald 7.5% and Cirrus at 10% Smith Donald Cirrus Coupon interestrate; 6.37% 7.875% 7.2% Years tomaturity; 3 8 11 Top rating for showing work!Explanation / Answer
Value of Bond Vb = INT(PVIFA Kd,N) + M(PVIF Kd,N) Smith : We have N=3yrs, M=Maturity value of bond = 1000, Coupon = 6.37%. So INT = 6.37%*1000 = $63.70 & Reqd ReturnKd=7% We have N=3yrs, M=Maturity value of bond = 1000, Coupon = 6.37%. So INT = 6.37%*1000 = $63.70 & Reqd ReturnKd=7%Putting values we get Vb=63.70(PVIFA 7%,3) + 1000(PVIF 7%,3) ie Vb = 63.70*[1/Kd - 1/{Kd(1+Kd)^N}] +1000*(1/(1+Kd)^N ie Vb = 63.70*[1/7% - 1/{7%*(1+7%)^3}] +1000*(1/(1+7%)^3) ie Vb = 63.70*(1/7% -11.661) + 1000*0.8163 ie Vb = 63.7*2.625 + 816.30 ie Vb= 167.20 + 816.30 = 983.50 So value of Bond is $983.50 for Smith
Donald : We have N=8yrs, M=Maturity value of bond = 1000, Coupon =7.875%. So INT = 7.875%*1000 = $78.75 & ReqdReturn Kd=7%
Putting values we get Vb=78.75(PVIFA 7%,8) + 1000(PVIF 7%,8) ie Vb = 78.75*[1/Kd - 1/{Kd(1+Kd)^N}] +1000*(1/(1+Kd)^N ie Vb = 78.75*[1/7% - 1/{7%*(1+7%)^8}] +1000*(1/(1+7%)^8) ie Vb = 78.75*(1/7% -8.314) + 1000*0.582 ie Vb = 78.75*5.972 + 582 ie Vb= 470.27 + 582 = 1050.27 So value of Bond is $1050.27 for Donald Donald : We have N=8yrs, M=Maturity value of bond = 1000, Coupon =7.875%. So INT = 7.875%*1000 = $78.75 & ReqdReturn Kd=7%
Putting values we get Vb=78.75(PVIFA 7%,8) + 1000(PVIF 7%,8) ie Vb = 78.75*[1/Kd - 1/{Kd(1+Kd)^N}] +1000*(1/(1+Kd)^N ie Vb = 78.75*[1/7% - 1/{7%*(1+7%)^8}] +1000*(1/(1+7%)^8) ie Vb = 78.75*(1/7% -8.314) + 1000*0.582 ie Vb = 78.75*5.972 + 582 ie Vb= 470.27 + 582 = 1050.27 So value of Bond is $1050.27 for Donald
Cirrus : We have N=11yrs, M=Maturity value of bond = 1000, Coupon = 7.2%. So INT = 7.2%*1000 = $72 & ReqdReturn Kd=7%
Putting values we get Vb= 72(PVIFA 7%,11) + 1000(PVIF 7%,11) ie Vb = 72*[1/Kd - 1/{Kd(1+Kd)^N}] +1000*(1/(1+Kd)^N ie Vb = 72*[1/7% - 1/{7%*(1+7%)^11}] +1000*(1/(1+7%)^11) ie Vb = 72*(1/7% -6.787) + 1000*0.475 ie Vb = 72*7.499 + 475 ie Vb= 540 + 475 = 1015 So value of Bond is $1015 for Cirus Cirrus : We have N=11yrs, M=Maturity value of bond = 1000, Coupon = 7.2%. So INT = 7.2%*1000 = $72 & ReqdReturn Kd=7%
Putting values we get Vb= 72(PVIFA 7%,11) + 1000(PVIF 7%,11) ie Vb = 72*[1/Kd - 1/{Kd(1+Kd)^N}] +1000*(1/(1+Kd)^N ie Vb = 72*[1/7% - 1/{7%*(1+7%)^11}] +1000*(1/(1+7%)^11) ie Vb = 72*(1/7% -6.787) + 1000*0.475 ie Vb = 72*7.499 + 475 ie Vb= 540 + 475 = 1015 So value of Bond is $1015 for Cirus
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