(Bond valuation) Enterprise, Inc. bonds have an annual coupon rate of 11 percent

Question

(Bond valuation) Enterprise, Inc. bonds have an annual coupon rate of 11 percent. The interest is paid semiannually and the bonds mature in 9 years. Their par value is $1,000. If the market's required yield to maturity on a comparable-risk bond is 14 percent, what is the value of the bond? What is its value if the interest is paid annually and semiannually? (Round to the nearest cent and please show work.)

a. The value of the Enterprise bonds if the interest is paid semiannually is $

b. The value of the Enterprise bonds if the interest is paid annually is $

Explanation / Answer

A)

B)

Face value (FV) $                                         1,000 Coupon rate 11.00% Number of compounding periods per year 2 Interest per period (PMT) $                                               55 Number of years to maturity 9 Number of compounding periods till maturity (NPER) 18 Market rate of return/Required rate of return 14.00% Market rate of return/Required rate of return per period (RATE) 7.00% Bond price PV(RATE,NPER,PMT,FV)*-1 Bond price $                                       849.11

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