Potter Industries has a bond issue outstanding with an annual coupon of 6% and a

Question

Potter Industries has a bond issue outstanding with an annual coupon of 6% and a 10-year maturity. The par value of the bond is $1, 000. If the going annual interest rate is 8%, what is the value of the bond? Round your answer to the nearest cent. Do not round intermediate calculations. Potter Industries has a bond issue outstanding with a 6% coupon rate with semiannual payments of $30, and a 10-year maturity. The par value of the bond is $1, 000. If the going annual interest rate is 8%, what is the value of the bond? Round your answer to the nearest cent. Do not round intermediate calculations.

Explanation / Answer

1 Face value (FV) $                                         1,000 2 Coupon rate 6.00% 3 Number of compounding periods per year 1 4 = 1*2/3 Interest per period (PMT) $                                         60.00 5 Number of years to maturity 10 6 = 3*5 Number of compounding periods till maturity (NPER) 10 7 Market rate of return/Required rate of return 8.00% 8 = 7/3 Market rate of return/Required rate of return per period (RATE) 8.00% Bond price PV(RATE,NPER,PMT,FV)*-1 Bond price $                                       865.80 1 Face value (FV) $                                         1,000 2 Coupon rate 6.00% 3 Number of compounding periods per year 2 4 = 1*2/3 Interest per period (PMT) $                                         30.00 5 Number of years to maturity 10 6 = 3*5 Number of compounding periods till maturity (NPER) 20 7 Market rate of return/Required rate of return 8.00% 8 = 7/3 Market rate of return/Required rate of return per period (RATE) 4.00% Bond price PV(RATE,NPER,PMT,FV)*-1 Bond price $                                       864.10

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