Do the following four problems related to Chapter 15: (Corporate Financial Analy
ID: 2718270 • Letter: D
Question
Do the following four problems related to Chapter 15: (Corporate Financial Analysis w/ Microsoft Excel, Clauss)
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
PV of a redemption value = Face value/(1+k)^n
PV of interest payment = int pay*(1-(1+k)^-n/k)
k = current rate of bond
Present Value of a bond = Present Value of Redemption of a bond + PV of interest payments
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%
Answer:-
PV of a redemption value = $1,000/(1.05)^30 = $231.38
PV of interest payment = 50*(1-(1+.05)^-30)/0.05) = $768.62
pV of a bond = $1000
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%
PV of a redemption value = Face value/(1+k)^n = $1,000/(1.05)^20 = $376.89
PV of interest payment = int pay*(1-(1+k)/k) = 50*(1-(1.05)^-20)0.05 = $623.11
PV of a bond = $1,000
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%
PV of a redemption value = Face value/(1+k)^n = $1000/(1.045)^20 = $414.64
PV of interest payment = int pay*(1-(1+k)^-n/k) = $45*(1-(1.045)^-20)/0.045 = $585.36
PV of a bond = $1,000
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%
PV of a redemption value = Face value/(1+k)^n
PV of interest payment = int pay*(1-(1+k)^-n/k)
PV of a redemption value = Face value/(1+k)^n = $1,000/(1.055)^20 = $342.73
PV of interest payment = int pay*(1-(1+k)^-n/k) = 55*(1-(1+.055)^-20)/0.055 = $657.27
PV of a bond = $1,000
1000 FV 50 int payment 30 Time period 5% kRelated Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.