Assume Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent
ID: 2780829 • Letter: A
Question
Assume Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent coupon rate with annual payments, and a $1,000 par value.
a. Suppose that two years after the bonds were issued, the required interest rate fell to 7 percent. What would be the bond's value?
b. Suppose that two years after the bonds were issued, the required interest rate rose to 13 percent. What would be the bond's value?
c. What would be the value of the bonds three years after issue in each scenario above, assuming that interest rates stayed steady at either 7 percent or 13 percent?
What would the formula be to this? not using excel*
Explanation / Answer
Formula=(PMT or coupon interest payment)*((1-(1+r)^(-n))/r)+FV/(1+r)^n
a.
bond's value
=(1000*12%)*((1-(1+7%)^(-8))/7%)+1000/(1+7%)^8
=1298.56 is the answer
b.
bond's value
=(1000*12%)*((1-(1+13%)^(-8))/13%)+1000/(1+13%)^8
=952.01 is the answer
c.
bond's value
=(1000*12%)*((1-(1+7%)^(-7))/7%)+1000/(1+7%)^7
=1269.46 is the answer
bond's value
=(1000*12%)*((1-(1+13%)^(-7))/13%)+1000/(1+13%)^7
=955.77 is the answer
the above are the answers
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