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 11 percent.

The bond has a 5.4 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

The bond has a 7.4 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

The bond has a 11 percent coupon rate. (Do not round intermediate calculations.)

The bond has a 5.4 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Rate = 11%/2 = 5.5%

Nper = 10

PMT = 1000*5.4%*1/2 = 27

FV = 1000

Fair Present Value = PV(Rate,Nper,PMT,FV) = PV(5.5%,10,27,1000) = 788.95

Part B:

Rate = 11%/2 = 5.5%

Nper = 10

PMT = 1000*7.4%*1/2 = 37

FV = 1000

Fair Present Value = PV(Rate,Nper,PMT,FV) = PV(5.5%,10,37,1000) = 864.32

Part C:

Rate = 11%/2 = 5.5%

Nper = 10

PMT = 1000*11%*1/2 = 55

FV = 1000

Fair Present Value = PV(Rate,Nper,PMT,FV) = PV(5.5%,10,55,1000) = 1000

Thanks.

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