(Round answer to 2 decimal places, e.g. 15.25.) ***Bond Value is 1000 A. AAA Cor

Question

(Round answer to 2 decimal places, e.g. 15.25.) ***Bond Value is 1000

A. AAA Corp is issuing a 10-year bond with a coupon rate of 6.76 percent. The interest rate for similar bonds is currently 6.37 percent. Assuming annual payments, what is the value of the bond?

B. AAA just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by BBB CORP. that pays an annual coupon of 4.79 percent. If the current market rate is 9.00 percent, what is the maximum amount AAA should be willing to pay for this bond?

Explanation / Answer

Part - A

Time to Maturity (nper) = 10 years ; coupon (pmt) = 6.76% or $67.6 annual; YTM (rate)= 6.37 %; Face Value (FV) = 1000; PV = ?

By Using the excel PV formula =PV(0.0637,10,-67.6,-1000) we get the value of the bond as $1,028.21

Therefore, the value of the Bond is $1,028.21

Part-B

Time to Maturity (nper) = 5 years ; coupon (pmt) = 4.79% or $47.9 annual; YTM (rate)= 9.00 %; Face Value (FV) = 1000; PV = ?

By Using the excel PV formula =PV(0.09,5,-47.9,-1000) we get the value of the bond as $836.25

Therefore, the maximum price one should be willing to pay for the bond is $836.25

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